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.
Here are portions of a report from activist Jeff Smith on his recent trip to the United Nations conference in Monterrey.
by Jeffery J. Smith
George Bush, former president Jimmy Carter, currency trader George Soros, US Ambassador to the UN John Negroponte, as well as economists Jeffrey Sachs, special advisor to nations “in transition” and to UN Secretary General Kofi Annan, and Hernando de Soto, author of The Mystery of Capital which urges debt upon Third World property owners, among many other top politicians and counselors spoke at the UN Conference on Financing For Development held in Monterrey, Mexico, March 18-22, preceded by the UN NGO Forum, March 14-16. March 17 was left open for protest marches. For the first time at a UN event, the World Bank, the IMF, and the WTO participated.
All together, about six thousand attended the event, not counting police. It was held in a conference center enormous enough to comfortably house an airplane hangar. Security was tight and ubiquitous but polite and occasionally multi-lingual.
Georgists and geoists need to be present and noted at such events. Many of the people who attend are interested in fresh ideas like geonomics and are in positions to help the cause. This event was high-level, hosted by the Mexican president, Vicente Fox. Titled Financing for Development, with a track called Mobilizing Domestic Resources that included the term taxation in its descriptive blurb, organizers seemed to be begging for the good Georgist word.
At the earlier NGO Forum, the outdoor buffet was $8.00, while a meal in an outdoor restaurant was $2.00, and a small bottle of water in that very dry and windy heat was over a dollar. But at the official conference that followed, on the other hand, the world’s tax dollars were at work. Almost all the males wore expensive dark suits and rarely left the air-conditioning. Telephones were free; people made calls to all over the planet. Gratis, too, were computers, copiers, and paper for the blizzard of documents that someone somewhere some time may yet read. The welcoming feast’s leftovers could’ve fed the barrio’s thousands.
The UN is a subculture. For this first-timer, it seemed a bit chaotic; the program was not issued in advance, nor at registration, but daily. For the high-level meetings, the program listed the time, which was long, and the general topic, and the participating governments and NGOs, but not the names of the speakers or the titles of anyone’s talk. Minutes listed the speaker’s name and titles but not his points. More important than eradicating poverty were all the honorifics and dress code for the social events.
Despite the new objective of the conference, most speakers ground the same old ax. Nothing can be done until the corporations, lenders, and Northern governments let them by repealing their unfair ways. Their most popular reform was the familiar you got it, we need it, hand it over. Besides this writer, another exception was the paper by a German academic group, Charging the Use of Global Commons, by the German Advisory Council on Global Change.
At the earlier Forum, it was hectic. There was no time between events other than a lunch break. Still, old-timers knew where to be when. Presentations started late and went over, so the schedule got hopelessly behind.
My talk was on the first day, but at 8:00 PM, at the end of an exhausting day. By then, only a few showed up. At least they liked what they heard, and tried to arrange a second presentation for me. Afterwards, the reporter for the main daily newspaper, Irma Deyanira Gonzales Garza of El Norte, interviewed me for a feature article in the Sunday paper.
Organizers of the NGO Forum read to the assembled ministers our two-day old declaration that the NGOs had produced. The governmental delegates to the UN did not exactly pack the house. Yet even during speeches by ministers, meeting halls buzzed with private, side conversations that half the audience engages in. The Deputy Secretary General of the UN, Louise Frechette, to balance the brief opportunity to speak afforded NGOs, at the last minute gave NGOs an audience of 45 minutes, that fell on the morning of my departure.
The exclusive editors of the declaration that came out of the NGO Forum replaced the Georgist input that my track had consensed upon with some independent sentiments of their own (this was done by people who demand democracy from above but apparently do not extend it to below). This despite the fact that the UN already accepted land-value taxation in Habitat II and in their Technical Notes leading up to Monterrey. The land tax is a tax upon everyone and is not obviously progressive. Plus, most countries already have a land tax, albeit at a low rate: for example, Mexico in the Third World, Estonia in the Second World, and Sweden in the First World.
A tax “reform” that was popular and reiterated time and again was the Tobin Tax, an admitted attempt to tax the rich. Instead of urging the left to co-promote the land tax, it may be easier to popularize the sharing of social surpluses in lieu of taxing useful output and subsidizing wasteful production. Just as the Tobin Tax sums up something more complex, this mouthful might be reduced to a Citizens Dividend. Foregoing popularity, it may be easier to advance geonomics not with activists but with establishment institutions, like US AID.
Typical of conferences, most of the best work took place out of sessions. Even though time between sessions was not in the schedule, people still took off to talk informally. I connected meaningfully with many who want to do more to advance geonomics (the shift of taxes landward, off production, the shift of subsidies citizen-ward, away from special interests). Most encouraging was the warm reception by representatives of US AID and the World Bank who responded positively to collaboration.
The Monterrey conference followed on the heels of the inaugural conference of the US Basic Income Group in New York, CUNY Grad School, where this writer also gave a presentation. The keynoter was Brazilian Senator Eduardo Suplicy. The most promising consequence was meeting the Vice President of the National Homeless Coalition, Terri Schofield, who invited me to present geonomics at the annual conference of the coalition in Washington in April — an invitation that I declined as funds are lacking. Others too are receptive to funding a housing voucher to all residents, from local rents.
A majority of Californians, earlier this fall, “voted” to replace the property tax with a tax heavier upon land, lighter on buildings. This shift in taxation, primarily for commercial parcels, would, most voters believed, curb sprawl and cut the cost of housing. The votes were cast not during the general election of November 3rd — the result, by a margin of 56% for this Property Tax Shift (PTS), was the outcome of public opinion research commissioned by the California League of Conservation Voters. (The Fund conducted a statewide poll of likely voters and a focus group in the San Fernando Valley, ground zero of the Proposition 13 tax revolt.)
Sam Schuchat, Executive Director of the CLCV and a member of governor-elect Gray Davis’ Transition Team, Appointments Unit, found the green PTS more acceptable to voters than other better-known green tax shifts. The appeal of the public collection of the publicly-generated rental value of land reflects its power. Not only a sprawl-buster, a land tax could also do the work of a pollution tax or an extraction tax.
A higher tax or fee upon land use would impel owners to put their sites to best use. To pay these “land dues,” owners of the most valuable sites, the ones closest to the center of the city, would draw any needed development, sparing the suburbs and farmland. By compacting towns and cutting drive times, the PTS reduces extraction and pollution upstream. As Confucius might have put it, to cut pollution, cut thru-put. To cut thru-put, cut demand. To cut demand, use land efficiently. To use land efficiently, reduce auto-infestation. To de-automobilize, densify cities. To densify, charge for holding land.
In the interview setting, participants took the time to hear out the explanations for the various tax shifts. In an actual campaign, voters, under bombardment from competing messages, wont take the time. In California, for each million dollars spent by the opposition, one percentage point of majority support will be lost (in a smaller state like Oregon, a million dollar negative ad campaign could shave off ten percentage points). Nevertheless, Schuchat announced that “our organization will probably drop the other tax shifts and try to put land value taxation on the ballot.”
Schuchat presented his findings in Seattle at Greening State Taxes, the first conference of its kind, co-sponsored by the Center for a Sustainable Economy in Washington, DC, and the Energy Outreach Center in Olympia, Washington. Besides grants from the usual green foundations, the symposium was also funded by the US EPA, Northwest Region. Government officials, including county assessors, almost outnumbered activists and academics. Balanced by veggie meals that were sumptuous and by a joyous Brazilian band at the reception, the gathering was attended by about 125 from the United States and Canada.
The events keynoter Friday morning was Alan Thein Durning, author of Tax Shift and founder of Northwest Environment Watch. Durning laid out how much revenue the various green shifts would raise. In the Pacific Northwest, a complete shift from income to pollution, from enterprise and sales to extraction, and from improvements to locations, could conservatively replace 86% of present taxes. The biggest chunk of that change, over one quarter of the total regional tax dollar, would be generated by land value taxation, “a subject I could discuss for hours,” Durning warned the audience.
The events Thursday morning keynoter was David Morris, Ph.D., founder of the Institute for Local Self-Reliance, author of Self-Reliant Cities which urged the collection of cable communication rent, and a regular columnist for The St. Paul Pioneer-Dispatch, the citys main daily. Morris was the initial force in Minnesota behind a drive which culminated in a green tax shift bill.
Carried by Rep. Ann Rust, who was one of four state representatives presenting at the conference, that bill would have lowered both property tax rates (it didnt make it out of the legislature). While a lower or zero rate on buildings rewards those who find homes appealing, a lower rate on land, on the other hand, rewards those who speculate in growing land values (witness the inflation of land costs in California, Massachusetts, and Michigan after capping or lowering their property taxes). Morris stated that he now “supports site value taxation.” Rep. Ann Rust and the activist co-authors of the bill, also panelists at Seattle, agreed to consider in the next legislative round a green tax shift bill that includes the PTS.
In conversations with other attendees, this reporter found only one person opposed to the PTS (and from liberal Madison, Wisconsin, yet!). All others were in agreement, or even enthusiastic. One of the new enthusiasts is active in the Oregon Environmental Council, the states oldest group which until recently had the current governor on its board.
The week after Seattle, the OEC hosted a meeting at Portland State University to ratchet up the states tax shift campaign. In attendance, besides the usual suspects, were also representatives of big business. Listed with the few other green tax shifts was the land tax. Topping the list of programs to fund with the collected rent, suggested OEC Executive Director Jeff Allen, “is not parks or schools but rebates.” Simply parcel out the collected rent on a per capita basis.
This inchoate coalition has a timeline: 1999, win a legislative study of the complete green tax shift package; 2000, educate and outreach to potential allies, the general public, and even potential opponents; 2001, lobby the legislature; if elected officials fail to shift taxes, in 2002 put the proposal on the ballot before all voters. Oregon always competes with California; perhaps the feedback from Oregon voters will top the California poll’s 56% figure.
Scott Anders of the Center for a Sustainable Economy and co-organizer of the conference told this promoter of the PTS that “youre preaching to the choir. Were all Georgists now.” However, I predict that Henry Georges land tax wont be won by ‘Georgists’ but by ‘greens.’
Below is a first-hand report by Geonomy Society president Jeffery J. Smith, on his recent trip to Brazil where he attended the huge World Social Forum.
by Jeffery J. Smith
Bigger than its capitalist counterpart in Davos (Switzerland), bigger even than the Democratic and Republican conventions combined – and certainly more entertaining – the World Social Forum (WSF) in Brazil was ignored by the US media. Yet from January 25 to 30, the WSF had over 5000 delegates, 1500 reporters, and 500 on staff (enabling the run-around, if you got it, to go on for almost ever). The opening day, over 15,000 marched in the streets. At night, overflow crowds flocked to the amphitheatre for concerts featuring major Brazilian acts. The WSF coincided with other major conferences in Porto Alegre, including one of elected officials from around the world, some of whom popped up amid the crowds at the WSF.
What made all this possible, plus a free shuttle from the airport and other perks, were funds from Nobel novelist Heinrich Böll, France’s Le Monde Diplomatique, the City of Porto Alegre, and the State of Rio Gran do Sul. Both government entities are dominated by the rapidly-growing Workers Party (PT, Party of Trabajadores or Workers) which brought the participatory budget to both jurisdictions. Thus, how public funds get spent is decided largely by town-hall-type meetings; now public pavements, streetlights, schools, etc, rather than being hoarded by the well off, do reach the working class neighborhoods. The leader of the party, “Lulu” in Portuguese, is a strong candidate for president of Brazil and gave an impassioned and well-received speech at the WSF.
Outside the venue, the police chased after Jose Bove, the French farmer noted for bashing MacDonald’s in Paris (try one of their hamburgers; you would, too). He and hundreds of members of the Movement of those Sin Terra (MST, Brazil’s large and popular organization of the landless, the smallest landowners, and their sympathizers), monkey-wrenched a local corporate field of dreams, seeded with genetically-modified plants. Vilified by the police, Bove was lionized by the WSF crowd. People can be fired up to oppose a perceived wrong. What might motivate them to advance a deserved right?
Despite some strong crosscurrents, the overriding message of the forum was unfortunately “US bad, socialism good.” Most speakers raked over old ground, lambasting neo-liberalism, free trade, multinational corporations, and the World Bank. The policies of the powerful do mainly enrich the rich and impoverish the poor (duh). Yet if politics is to have anything to do with the world getting well, all that energy and organization against something needs to be redirected for something.
While it is necessary to demand that the strong not exploit the weak, it is not sufficient. Would-be reformers must also ask how to make the weak strong. The US’s ruling elite does not exploit just anybody. The US exploits those who are already exploiting themselves. Yet the word “corruption” did not appear once in the WSF schedule, a document of over 100 pages and 500 workshops. Although criticizing others is more fun, changing their behavior might be more difficult than changing one’s own or that of one’s own ruling elite.
To make the weak strong, the WSF did offer a sprinkling of constructive workshops. They covered such topics as land reform, some of which were presented by governmental agencies; and a social salary, showing the idea is not just for rich countries, and even one on being not reactive but proactive. Some demanded shifting debts owed to foreign lenders from the people of the South to the people of the North rather than to the elites of both and offered nothing to prevent the debts from reappearing post-cancellation. But to cut to the heart of the matter, other than the lone workshop on geonomics there was nothing on how capitalists accumulate wealth – privatize society’s gains and socialize private costs.
The modus operandi of accumulation is the control of rent and of public revenue. Every entity that the Forum criticized, from the World Bank to the multinationals for whom corporate welfare worldwide totals $1.5 trillion each year, is engrossed by subsidy. A few speakers did talk taxes, not shifting taxes off goods onto bads, but creating a brand new tax, the ever more popular Tobin tax on currency transactions. It’s another attempt to control the behavior of others, rather than examine how a few accumulated so much money and why some currencies are strong and others weak (hint: corruption) or what role a global currency could play.
Mark Twain would have loved it. Like most political/religious gatherings, the WSF abounded in contradiction. A diatribe against technology was interrupted by the speaker’s cell phone. After demanding equality for all, speakers retired to the guarded VIP room for those more equal than the rest. Smokers forced everyone to inhale their toxic exhale, lighting up Marlboros (made in the USA) beneath “no smoking” signs. Between speeches, the anti-marketeers flocked to the temporary market of booths outside the conference hall selling food, crafts, and anti-trade T-shirts to take back to their homelands.
Some things in Latin America never change. The police force’s official torturer kept his job, even though the PT captured a majority in the city and state. The host facility, the Pope’s Catholic University, was next door to where the army still trained its cavalry. Some locals asked visiting gringos if they had voted for the winner, Bush, as if some patriarch were really in charge (and as if Republicans would take a vacation in the Third World). During the conference, workshops began an hour late and ended two hours late, reminding one that the revolution will not start on time. The left and ultra-left got into shouting matches, recalling the story of the leftist firing squad formed in a circle.
The WSF generated action but not direction; it boiled water but cooked nothing. The Forum, if it is to realize its slogan and make dreams real, should devote more time to trying to reach group consensus on how to make the world better, not just how to stop it from becoming worse, on our becoming pro-active, so our opponents must use up their resources resisting us, instead of our forever being re-active, letting our opponents dictate how we spend our time and energy. Imagine a growing, global movement demanding a social salary in lieu of corporate welfare.
As GB Shaw noted, “if you’re not a socialist at 20, you have no heart; if you’re still a socialist at 40, you have no head.” To have both heart and head, reformers might investigate geonomics. It combines the efficiency of the market with the equity of real community. It would replace taxes on useful effort with the collection of rents (the annual values of sites, resources, and monopolies), and replaces subsidies beneath wasteful programs with a dividend paid to everyone. It’s a non-left, non-right, third-way approach that some find worth pursuing.
The number of people at the Forum inspired by geonomics should have been greater. I had been scheduled to give two workshops, one with Vicki Robin, a leader in the simpler living movement. Because my visa had arrived late, I arrived late, missing both dates and having to scramble to reschedule. At least Vicki and I did get a chance to chat a bit later.
Trying to reschedule a workshop was a task that led me into the Kafkaesque labyrinth of WSF bureaucracy, a twilight zone from which I never fully re-emerged. The first rescheduled talk turned out to be at the same time and place as someone else’s. The second had too little lead time for much advance publicity. The special flyers handed out prior to the event were garnished by Marcel Franco, police officer and husband of Luciane, publicist for the State, with a caricature portrait of yours truly. Despite this attractive decoration, only seven came, but they were enthusiastic; one even translated my talk (including the contact information for the Henry George Institute) into Portuguese and posted it on the WSF website.
Misfortune stayed doggedly at my heels. Enthused by how collecting rent has redistributed land bloodlessly, Edda Isernhagen of the MST arranged a meeting with Tarso Genro, the popular PT mayor of Porto Alegre, that fell through at their end. On the plus side, I did meet with José Eduardo Utzig, the guy in charge of raising revenue for the city.
Like cities everywhere, in Porto Alegre cars clog the streets and the architecture tires the eyes. To fund programs and spur efficient use of land, cities could shift taxes off buildings, onto locations. Intelligent and informative, Utzig, explained that Brazilian cities already have myriad different taxes and rates on land and buildings, even a very high rate for vacant land. He and his staff had recently met with, and would soon again, the Lincoln Institute, a wealthy, pseudo-geonomic outfit out of the Boston area. Operating in their shadow dimmed the message I tried to deliver – a simple high rate on all sites, not just vacant ones, could replace many counterproductive taxes.
I also met with the staff of Pro-Guaíba, the state agency in charge of sustainable development. Eloise de Moraes showed me a map of the state. The low, flat lands, the best for farming, now grow rice in huge plantations owned by descendants of the first Euro-colonists, the Portuguese. The hilly highlands are planted in a mix of crops owned by more recent immigrants, the Italians and Germans. The indigenous inhabitants did not appear on the map. Eloise was especially helpful, offering translation of articles, sponsorship of future talks, outreach to the local universities, and whatever else we can later dream up.
My message was broadcast beyond the campus. Community Radio’s Denise Flores interviewed me in Spanish. Others who took an interest in geonomics included environmentalists, the representative in Brazil of the Catholic Relief Services, students, faculty and staff from a number of universities in several nations, Rosalia Paiva of the organization Women Unemployed which has a radio program said “your dreams are our dreams,” and many others.
Next year’s WSF will also be in Porto Alegre. I hope I’m invited back. In Brazil one meets some of the most generous and helpful people. The society retains the human qualities lost from the developed world: the laughter in their conversations, the warmth in their greetings, the mother and teenage daughter holding hands on the sidewalk, male friends with arms around shoulders in public. And if the ruling PT maintains its interest in what works, there may be a reason for geonomists to return even sooner.
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.
Jeff Smith of Portland is president of The Geonomy Society, a nonprofit organization formed promote tax-shifting, and Kris Nelson is a Salem consultant. They are coordinators of a conference on “Earth’s Worth: The Key to Sustainable Development.” P>
What is your opinion about taxing land values more and buildings less? Tell The Progress Report!
a term I coined in order to shorten “ecological economics” and to focus on the whole earth, not just natural habitat. Others have borrowed or coined the term. Years after I began this newsletter, CNBC cablecast its “Geonomics Report”; they meant “global economics”, specifically trade that favors US corporations and investors. And a vintner uses “geonomy” as his URL (why?). Literally, geonomics is “earth economics” or “earth management”. It sees economies as part of the ecosystem, operating by similar laws of feedback and balance. It suggests that if prices are accurate – and now we distort them with taxes and subsidies – then markets can be, in theory, perfect for both people and planet. So, the idea is to replace taxes with Land Dues, similar to Sydney Australia’s land tax, and replace subsidies with a Citizens Dividend, similar to Alaska’s oil dividend. In effect, people would share the worth of Mother Earth, instead of tax their efforts to produce value. Everywhere any version of the idea has been tried, it has been successful.
Less than 1/4 enough
Norwegian academic Ole Gunnar Austvik, a specialist on oil leasing, explained that government should take most of oil’s economic ‘rent’ (the profit above ‘normal’ profit, risk adjusted). On top of Norway’s corporate tax of 28%, the government levies upon the companies leasing oil off Norway’s coast a 50% special tax, making oil companies pay 78% of total profit. Seventy-eight percent of profit sounds perhaps like too much, but companies have been queuing up in each licensing round for years. (Vue Weekly, Edmonton, Canada, November 15; via Mark Monson) Could the US and American states, which now recover only a quarter or less of oil’s economic rent, learn to strike a harder bargain? Oil companies rake in billions each quarter – then squeal hardship whenever Congress whispers about ending their subsidies or tax breaks. But once the people do get the rent for oil, our “oiligarchy” would fall. Rather then wage oil wars, we might address peak oil and global warming – in time.
FROM THIS PEN’S PERCH
Everybody wants some
We moved again (closer to Reed College, my mom’s alma mater). Shops are no longer walkable, so rent is lower. The neighbors are quieter (noise pollution is maddening!) – until the pool opens next summer. Meanwhile, my fellow Oregonians complain about rural owners getting compensation for not being allowed to develop. Yet these same concerned citizens expect to sell their urban homes for twice what they paid for them. We all have a right to profit from land. The problem is we do it now by buying and selling rather than by sharing. We could pay Land Dues – the annual rental value of our location – in to the public treasury and get “rent” dividends back. For most of us, who don’t own acres of forests or prime blocks downtown, the net gain would be hundreds of dollars each month. Then we could afford to do without so many subsidized services and hence lower or eliminate other taxes, those on buildings, business, and income – another big savings. But it begins with realizing that the growing value of land and resources is here for all of us to share. May your Winter Solstice of 2006 be your merriest ever.
Policy shows natural law
In Australia, the State Government of Victoria pays wanna-be homebuyers first-time grants, nearly $450 million per year. Using the money, the recipients bid against each other, as sellers well know, and raise the cost of housing. In the suburbs where the “lucky” recipients spend their grants, the increase in housing prices over the last two years was double the rest of the Melbourne region. In September, affordability fell to its lowest in three years. Instead of help would-be buyers, the subsidies merely enrich sellers and their agents. One original argument for the grants was that urban growth boundaries had curbed supply, inflating prices. Since the grants are not helping the intended, some now argue that the money should be given to builders to erect affordable housing. (The Age, November 11; via Phil Anderson) Subsidizing builders would again enrich the rich and keep all decisions as to location and quality up to suppliers, not disadvantaged consumers. A better solution is, yes, pay grants, but to all regional residents and draw the revenue from the region’s site values, quite high in the downtown business district. Having to pay Land Dues, landowners quit speculating and put their locations to highest and best use. That adds to the supply of housing, keeping down its price, while the dividend enables wanna-be buyers with the wherewithal to meet the price. Aspen CO does something vaguely similar.
New tallest structure
In Japan, the six biggest broadcasters plan to open the new world’s tallest structure in 2011. At 618 meters, it will handily top the current tallest structure, Toronto’s CN Tower at 553 meters. (Associated Press; via Phil Anderson). Usually, each new tallest structure opens after the business cycle has peaked, which one Asian economist called the “Erection Index”. New York’s Empire State Building opened in 1931, two years post-peak. If the patterns holds, Japan’s economy would begin receding in 2009 or 10.
Arms sales worsen wars
Arms sales to the most unstable regions – many already engaged in conflict – grew to the highest level in eight years. The US supplied $8.1 billion worth of weapons to developing countries in 2005 – 45.8% of the total and far more than second-ranked Russia with 15% and Britain with a little more than 13%. The US transferred weaponry to 18 of the 25 countries involved in an ongoing war. More than half of the countries buying US arms – 13 of the 25 – were defined as undemocratic by the State Department’s annual Human Rights Report. Arming poor allies risks fueling conflicts rather than enhancing collective defense. Yet making weapons also keeps factories running in certain congressional districts. When a United Nations panel voted to study regulating the sale of conventional arms, the United States was the only country out of 166 to vote no. (Boston Globe, November 13; via Bill Batt)
If instead we were to export geonomics – a fair and efficient system that reinforces our connection to Earth and a species-wide identity – this poor planet could be such a peaceful place. That’s my Christmas wish.
Brit billionaires tax-free
How much tax the superrich pay is something the Irish authorities release – 184 people taking in more than £1m last year paid no personal taxes – but English ones don’t. On their own, private investigators figured the 54 UK billionaires paid taxes totaling £74.5m. Like their fellow Englishmen, billionaires, too, are liable for VAT and council tax. On their £126 billion combined fortunes, their income tax came to £14.7m. One person, James Dyson the inventor worth £1,050m, paid £9m, over half the income tax paid by the billionaires. The £14.7m puts their effective income tax rate at 0.14%. At least 32 of the individual billionaires or family groupings escaped paying any income taxes. Of the 22 billionaires who did pay, it was mostly on share dividends paid by their companies, not on a conventional salary, as the tax on dividends is at 25% rather than the 40% on income. While middle-class Britons face an increasing tax burden, the country is increasingly regarded as an “onshore tax haven” by the superrich and their advisers [which must work wonders for the Brits' sense of social cohesion]. Some of the world’s wealthiest people now use London as their base. (The Sunday Times – Britain, December 03, via Carol Wilcox)
If some have too much, why give it to them? Why pay out corporate welfare and funnel all rents into few pockets? Better than trying to claw back wealth once amassed is to spread it around initially. That is, recover and share society’s surplus, the worth of Earth.
Forbes 400, monopolizers
Forbes magazine used to list millionaires. Now the 400 richest Americans are all billionaires. As a group, they’re worth $1.25 trillion, up $130 billion from last year. The top ten is dominated by owners of new tech, such as top dog Bill Gates, Wal-Mart inheritors, the lone stock trader Warren Buffett, and Sheldon Adelson who owns casinos and hotels not just in Las Vegas but also in Macau China where gambling is a huge part of the culture; his hourly wage was $1 million. The two Google founders, Sergey Brin and Larry Page, took in $13 million each day. (The Oregonian, September 22)
In mass markets in rich or big countries, one must expect some concentration of wealth, but this much? The concentration would be much less in a fair economy, one where we would run parts of our government like a business. Specifically, government would not hand out monopolies for free. Instead, our collective agent would charge full market value for its corporate charters, discovery patents, gambling licenses, etc, just as private business charges full market value for its insurance coverage and bank loans. Then government would pay out the revenue as a dividend to citizens, enabling workers to hold out for higher wages and afford classier goods, popping the Wal-Mart bubble. Once today’s holders of such valuable pieces of paper pay the going rate for their monopolies, then Forbes goes back to listing millionaires, not billionaires.
CEOs falsify option dates
From 1996 through 2005, at least 850 CEOs backdated their stock options to when their company’s shares were at their lowest monthly price. Doing so is often illegal and always dishonest. And the earlier date occurred before the executive took over as CEO. Buying the stock at the lowest possible price then selling it in real time, when if all goes well its price is higher, on average stuffed an extra $1.3 million to $1.7 million into executive pockets. (Too Much, November 27; via Ed Dodson) Failure to report this executive perk, an expense, also lets the company’s stock price reflect too much value. Now as companies confess to backdating, the loss in their value has so far reached $10 billion and should greatly exceed that, losses born by all other stockholders (The Oregonian, October 25).
Backdating is cheating. It’s the sort of thing government is supposed to punish. New York elected a new governor, Eliot Spitzer, with a record for prosecuting such abuse. If voters elect more fair-minded candidates, perhaps a critical mass will become attuned to distinguishing between private wealth and common wealth, between earnings and windfalls, and de-tax what’s yours or mine and recover and share what’s all of ours.
From frying pan to fire?
People and jobs are moving away from cities in search of land that’s not so expensive. Yet the parts that have seen the greatest growth since 2000, the Sun Belt, lack extensive mass-transit. Even in car-addicted places, Blacks and Hispanics are more likely to carpool or use public transit than drive alone to work. Some people leave early to avoid congestion. About half of the people who work in Phoenix and Riverside CA get to work between 5 and 7 a.m. Nationwide, 28% get to work early. Despite cities sprawling onto less pricey land, the share of homeowners spending more on their mortgage than they can afford – 30% of their income or more –went from 27% in 2000 to about 35% in 2005. (USA Today, Oct 3)
Spending more time in cars, one-third of children and teens, about 25 million kids, are overweight and get winded easily, which increases their risk of having diabetes, high cholesterol, high blood pressure, and other illnesses as adults (USA Today, October 3).
If both housing and transportation are to become affordable – and leisure possible – then regions must recover and share their sky-high site values. Speculators will take less land or none, and others will use what they take efficiently. That in-fills cities and towns so people don’t need cars – which are fattening – and can get about on buses, bikes, or foot.
Wal-Mart on shaky ground?
While retailers that attract higher-income consumers continued to do well in November, others, especially Wal-Mart, did not. Wal-Mart’s November sales were down 1%, and the company predicted December sales would be flat. The November decline was Wal-Mart’s first monthly drop since 1996 April. Moody’s still has an Aa2 rating on Wal-Mart, making it the highest-rated retailer in the world. Its low-budget customers may still be feeling the pinch of high fuel prices, as may others. More shoppers plan to buy online this year, 43% compared with 36% last year. More planned to use catalogs, too: 16% vs. 13% last year. (USA Today, December 1)
This is part of the scenario dubbed the end of suburbia, painted by those who note our energy use has passed peak oil. If such trends continue, Wal-Mart will need to find other uses for parking lots besides park cars. The transformation could come sooner, too, if jurisdictions shift the property tax off buildings onto land, making asphalt-covered aprons a financial drain.
Our audience withers?
National parks are seeing 20% fewer campers than 10 years ago, probably due to a slumping economy, higher gas prices, more competition for people’s time, and changing demographics. The long weekend is replacing the two-weeks off, and groups that seldom visit parks, such as minorities, are growing. Overnight stays in national parks fell by 13.8 million, or 20%, between 1995 and 2005 and have fallen an additional 4.3% in the first eight months of 2006. Tent camping dropped 23%, backcountry camping 24%, and RV camping 31% in the 10-year period. Visits to “gem parks” – which include Yellowstone, Grand Canyon, and Rocky Mountain – dipped between 2% and 15% during that time. (USA Today, Sept 28). As more people lose touch with nature, does that make it harder to win a critical mass for sharing Earth’s worth?
Airports rent out locations
After years of operating strictly as public agencies, airports are becoming more entrepreneurial. Besides serve airlines, they’ve always granted concessions to retailers, parking, and rental cars. Now airports are developing malls, office parks, and golf courses. They are also pursuing agricultural projects, drilling for gas, and marketing consulting services. In doing so, they rely less on the shaky finances of struggling airlines. Getting a high percentage of revenue from non-aviation sources earns airports an “A+” bond rating. Commercial airports last year generated about $13 billion in operating revenue, more than half of it from landing fees and various services to airlines, and 47% from non-aviation sources, mainly parking fees as well as rent from retailers and car-rental agencies. (USA Today, Sept 25) Sooo, land no longer matters in the modern economy, huh? For airports, both land (the stuff) and location (the proximity) generate revenue.
Income down, banker frets
Labor’s economic slice – including wages, health insurance, and pension benefits – declined 2.5 percentage points from 2000 to 2005, to 56.5% of GDP. Workers in Germany lost 3.1 percentage points over the last half-decade. In Japan the decline was 3 points. Overall, the workers’ share of the economy fell in four of the Group of 7 industrialized nations. In real terms, the wages of non-management employees in the US are now 10% below their level in the early 1970′s. (New York Times; via Heather Remoff)
San Francisco Federal Reserve Bank President Janet Yellen: income inequality has risen to such a level that “there are signs that (it) is intensifying resistance to globalization, impairing social cohesion, and could, ultimately, undermine American democracy.” She noted that during the past three decades, much of the increase in wealth had gone to the people at the top. Yellen said inequality is higher in the US than in other industrial nations and the safety net less generous. “Inequality has risen to the point that it seems to me worthwhile for the US to seriously consider taking the risk of making our economy more rewarding for more of the people.” (USA Today, November 7)
How risky is it for the economy to serve the people instead of vice versa? In the same article, former Fed chairman Alan Greenspan said that while the housing market has not hit bottom, “The worst is behind us.”
Outgo up; blame land
Today’s median-earning, median-spending family sends two people to jobs but has about $1,500 less for discretionary spending than their one-income middle-class counterparts of a generation ago. They spend less on food, clothing, major appliances, and fun in order to spend 75% of their income on mortgage, car payments, insurance, and childcare. (Elizabeth Warren, Harvard professor of law; via Alanna Hartzok) From 2000 to 2005, real estate prices escalated while incomes stagnated. Mortgages are burdening a growing number of people not only in fast-growing areas of California, Colorado, and Texas pay but also in the Midwest and in suburbsnationwide. On average, Americans spend 21% of income on housing; spending 30% is when housing becomes a burden. (The Oregonian, October 3)
While house prices have leveled and in some places are dropping, rents are rising. The share of renters spending 30% of income also jumped, from 37% to about 46%. In a poor city like Newark NJ and in some Southern California towns, over 70% of renters are paying burdensome amounts. In some Western campus towns, about half the renters spend at least half their income on housing. (The New York Times, October 3; via Heather Remoff)
To raise income, don’t tax it. To lower the cost of land, do tax it or charge Land Dues. Then direct a hefty portion of the revenue into a dividend to residents.
Murder & robbery in cities
In 55 cities during the first six months of this year, the overall number of homicides rose 4.2% compared with the same period in 2005. In 2005 the nation’s murder rate increased1.8%, after a two-decade low in 2004. While homicides have declined in some cities in 2006, of those 55 cities, 19 had double-digit percentage increases in homicides. More than 40 cities reported jumps in robberies. (USA Today, October 13)
David Hackett Fischer (The Great Wave) noted that for centuries crime followed inflation. Prices rose when population growth (demand) outstripped output of a basic necessity (supply) such as firewood. Today’s fastest inflation rate occurs in Zimbabwe – 1000% annually; there the state’s land seizures have discouraged work; everything’s scarce. In the US and the rest of the West, immigration exacerbates declining oil reserves.
For prices to stay up and not return to “normal”, more money gets issued than goods and services produced. In Britain, as mortgage approvals return to boom levels and consumers start to borrow more on credit cards again, money supply is growing at its fastest rate in 16 years. Some members of the Bank of England expect inflation to rise, too (The Times, October 31). In Zimbabwe, those with enough money speculate in real estate and foreign currency exchange while the state keeps printing new notes with strings of extra zeroes (The Economist, Aug 26).
Another impact on the US dollar is foreigners trading them in for other currencies, which also expands the domestic money supply. Result: inflation, meaning the cost of living overly burdens people at the bottom, where most crime is committed.
Home+sites’ prices cool off
In August, the median sales price of existing homes fell on a year-over-year basis for the first time since 1995 April. It was just the sixth drop in the past 38 years of theRealtors survey. Over the past five years, prices had been rising at an annual rate of 7.5%. As late as 2005 October, prices were up 16.8% on a year-over-year basis. Even after this decline, prices are still up 27% over the last three years. (CBS MarketWatch, Sep 25)
In September, the median price of a single-family existing home fell to $219,800, a drop of 2.5% from the median price in September 2005. That was the biggest year-over-year price decline in records going back nearly four decades. Sales of existing homes fell for a sixth straight month. (USA Today, Oct 25)
In September, the median price of a new home dropped from $240,400 a year earlier to $217,100. The 9.7% decline was the biggest drop since an 11.2% year-over-year fall in 1970 December. The median price was the lowest since 2004 September, when it was $211,600. Thanks in part to falling prices, purchases rose for the second month in a row, after falling for three straight months from May through July. (Associated Press, October 25)
While more than 100 metro areas posted price gains over the summer, 45 did not, and not just in industrial cities, where job losses have taken a toll on housing, but also in the Sun Belt. The 45 metro areas that saw year-to-year price declines in Q3 were the most since the Nat. Assoc. of Realtors began keeping records in 1979. (USA Today, November 21)
Insiders: recession ahead?
Treasury Secretary Hank Paulson, who built a $700m private fortune at Goldman Sachs, is re-activating the ‘plunge protection team’ (PPT). Otherwise known as the working group on financial markets, it combines the heads of Treasury, Federal Reserve, Securities and Exchange Commission (SEC), and key exchanges. After the Wall Street tumble in October 1987, Ronald Reagan created it to buy stocks, currency, and credit futures whenever a crash looms. During the 1998 global crisis triggered by Long Term Capital, the Fed orchestrated all of the major banks to prop up the currency markets. They have an informal agreement to do the same for stocks. (UK’s Telegraph, October 30)
Keep their number handy. A chart plots the National Association of Home Builders’ confidence against the Standard & Poor’s 500 stock market index over the past ten years. Not only did the NAHB index presage the start of the post-1994 bull market in stocks, but its decline starting in 1999 foreshadowed the equity market collapse the next year. Builder confidence rebounded in 2001 November – a year ahead of the stock market upswing that began in 2002 October. Over the past year, builder confidence plummeted 54%. Were stocks to follow suit, the S&P – 1400 in late October – would be south of 700 this time next year. We’ve had 11 sharp declines in the housing market since World War II, including this one. Eight of the last ten preceded a recession. (Fortune Magazine, November 13)
Could be coincidence; ten years are not much in the history of cycles. There was another eye-popping chart: the exponential J-curve growth in using homes as cash machines – cash you pay back with interest.
Investment in residential structures plunged at an annual rate of 17.4% in the summer months, the steepest slide in 15 years, since a 21.7% drop in 1991 Q1. Investment in commercial structures helped offset the housing collapse by rising at a 14% annual rate. Conventional economists said back in July that GDP in Q3 would hit 3.1%; in October they revised themselves downward to about 2%. Nouriel Roubini, a professor at the Sterns School in NYU, back in July forecast 1.5%. GDP came in at 1.6%, its weakest growth since the beginning of 2003, when it was emerging from the 2001 recession. For Q2, economists on average had expected the GDP to grow at 3.2%, while Roubini had forecast 2.5%. It reached 2.6%. Roubini predicts a housing-led recession to be in place by 2007 Q1 or Q2 at the latest. (MarketWatch, October 27)
FROM THE OP-ED PAGES
Brits and other northerners
Financial Times (London Edition, October 20): What is needed now is a shift of the discussion from funding local authorities to the gradual use of land levies to enable workers to protect their living standards and, if possible, transfer to them some of the gains from a single world economy. (Via Mark Monson)
Guardian (UK, Spt 29): “Taxing land values is an old idea, but one as relevant today as it was when Lloyd George first proposed it.” (Via Mark Monson)
The Gazette (Montreal, September 11): Land-value taxation makes it costly for speculators to sit on vacant land because they pay the same tax as the owner of an office building on comparable land. Land-value taxation discourages speculation, encourages development, and helps curb urban sprawl. The idea developed with Henry George, a 19th-century editor and political economist in the United States who argued speculators shouldn’t profit from rising land value because they’ve contributed nothing to it. The system would be best applied uniformly across Quebec and Canada. (Via Mark Monson)
ISAIAH, an ecumenical alliance of 80 congregations in the Twin Cities metro area: We need an incentive system in place that makes speculating in sites less attractive and instead encourages investment and productive use. Land Value Taxation has been a powerful redevelopment force. We support efforts to bring this innovation to Minnesota. (By member Rich Nymoen and Sarah Gleason in The St. Paul Pioneer-Press, November 22; via Mark Monson)
Let’s flatten or shift taxes
Nobel laureate Joseph Stiglitz in the Miami Herald (November 15; via Ed Lawrence): “A global externality can best be dealt with by a globally agreed tax rate. This does not mean an increase in overall taxation, but simply a substitution in each country of a pollution (carbon) tax for some current taxes. It makes much more sense to tax things that are bad, like pollution, than things that are good, like savings and work.”
LA Times (November 20): “Since 1986, Washington has taken about 15,000 steps backward, enacting an average of 750 new or modified exemptions, deductions, and other wrinkles to tax law every year. Two Democrats — Sen. Ron Wyden of Oregon and Rep. Rahm Emanuel of Illinois — have introduced bills that would simplify and flatten federal taxes. Lawmakers should eliminate all but the most vital and effective tax breaks and tailor those as precisely as possible to the goal they want to achieve.”
Let’s lose subsidies
John Stossel, host of ABC’s 20/20 (September 27): “Big business and big government prosper from the perception that they are rivals instead of partners (in plunder). Politicians like it that way because they get power and prestige, and businessmen like it because they get protection from competition. They knew regulation would burden smaller companies more than themselves. Regulation isn’t the only form of protection that big business gets from government. Companies with political clout get cash subsidies, low-interest loans, loan guarantees, and barriers to cheap imports. Even foreign aid is a subsidy to big business because governments receiving the taxpayers’ money buy American exports.” (Via Mark Guttman of the DFCP)
Ex-Bush Sr. advisor, Catherine Austin Fitts (July 24): “Cui bono? Who benefits? There is no place on Al Gore’s time line that shows the growth of consumer, mortgage, and government debt; the corporate model’s economic dependence on subsidy that drives up debt … is a critical piece.” (Via Kathleen Walsh)
It’s not just Congress. States and localities also put lots of pork in their budgets. Here in Oregon, tens of millions in grants intended for country doctors end up in the pockets of rich plastic surgeons, covering malpractice premiums (Oregonian, Sept 21). And the City of Portland subsidizes the Chamber of Commerce.
USA Today (October 25): “US taxpayers shouldn’t help create the next catastrophe in the Big Easy. The federal program collected only $2.2 billion last year in premiums but will pay out more than $20 billion in Katrina claims, leaving taxpayers on the hook for the rest. Worse, the program encourages development in areas subject to flooding – not just in New Orleans, but everywhere – by offering insurance at bargain rates in areas where private insurers fear to tread. If local authorities allow residents to rebuild in the most dangerous areas, it should be at their own risk.”
LA Times (October 31): “Few US growers would be in the cotton business if not for one of our most obscene corporate welfare programs. Much of the roughly $3.5 billion every year goes to large corporate operations or wealthy families. The payments encourage overproduction and make it almost impossible for African farmers to compete. This doesn’t just hurt people overseas. The US government last year spent about $23 billion on farm subsidies. What did taxpayers get for their money? A fat agribusiness industry and inflated land values. When other nations subsidize industrial exports that compete with our goods, we cry foul, and this incessant hypocrisy contributes to anti-American sentiment in much of the world. While the United States spends billions of dollars a year on foreign aid, it spends even more on agricultural subsidies that make it harder for those countries to wean themselves off outside support. Enough already.”
FROM THE ARCHIVES
Trade or raid? Our call.
The Christian Science Monitor (November 20): “Reducing barriers to both trade and capital flows can promote a more peaceful world. Examining military conflicts from 1816 through 2000, countries that rank lowest on an economic-freedom index are 14 times more likely to be involved in military conflicts than are countries whose people enjoy significant economic freedom. Economic freedom is about 50 times more effective than democracy in diminishing violent conflict.” By Donald J. Boudreaux, chairman of the economics dept at George Mason University.
A Sustainable World
Creating a Sustainable World: Past Experiences, Future Struggles is edited by Trent Schroyer and Thomas Golodik (Apex Press, 2006). Essayists include: Robert Engler, author of The Politics of Oil, Vandana Shiva, Wolfgang Sachs, Peter Montague (editor of the blog Rachel), Ward Morehouse, Alanna Hartzok who recently won a contract from the UN to put Land-Value Taxation on the web, among others. The authors reckon that neo-liberal politics and neoclassical economics have been subjugated to corporate power, which abuses both natural and human resources unsustainably. Each contributor interprets what is happening, speculates about the consequences, and opines how to sustain our world. Introductions to each section of the book integrate the material well. The book’s four sections are: sustainable development, the impact of corporate power, requirements for a sustainable lifestyles, and redesigned social systems that might achieve them. Their answers urge us to limit corporate power, return to local economies and polities, reassert the commons, rebuild sustainable agriculture, and strengthen local democratic institutions – which would only reverse the prevailing trends of the last three centuries. Some of the articles were a bit prolix yet Creating a Sustainable World offers hope to a readership, likely to be comprised largely of students, who need encouragement and direction. (This digests a review by Bill Batt which appeared in Groundswell, November.)
Losing home investment
Dean Baker, author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer, in an editorial published by Truth Out (October 24): “In the recessions in the mid 70s and early 80s, housing fell off by close to 50%. However, house prices had not gotten so out of line with fundamentals in those earlier periods, nor had housing wealth fed so directly into consumption. In the fall of 2000, six months after the stock market crash and just a few months before the beginning of the last recession, not one of the ‘Blue Chip’ 50 economic forecasters saw a recession on the horizon. In fact, the most pessimistic forecast for the next year was that the economy would grow at a modest but respectable 2.2%. This time, tens of millions of families bought homes at bubble-inflated prices and now face the prospect of seeing their life savings disappear in the housing crash.” Baker is Director of the CEPR in DC which frequently appears in the mainstream press and wins funding from major foundations. (via Paul Martin)
Builders’ debt gets risky
Barron’s, (Oct 2): The housing market downturn means option deposits on land and joint ventures could come back to haunt some homebuilders, their financial partners, and their stockholders – not to mention the economy. If orders dry up and homebuilders abandon optioned land, they have to spread the sunk costs of developing a community – which range from architectural plans to the construction of model homes and swimming pools – over fewer homes. Walking away from unfinished communities would kill their reputations. Under accounting rules, options on land are considered assets plus builders need not disclose debt, no matter how many millions, if it’s a minority stake in the equity used to buy land. Yet if builders are forced to write off their land options or off-book investments, that they must disclose. Significant use of options and joint ventures put downward pressure on these companies’ Moody’s ratings relative to companies with more straightforward financing. Some builders could face substantial hits to book value. Housing bulls argue that those shares already reflect such losses; the Standard & Poor’s Supercomposite Homebuilding Index is down 41% from its high of 2005 July [so bad news is good news?]. When homebuilders forfeit their option, the landowner presumably would shop the property anew, and at a reduced price, particularly if it carries debt. Selling at 25% to 50% off would impact the rest of the land market and thus the economy.
Fortune proposes a voucher
Fortune magazine (November 13) proposed a health voucher for all Americans, which would be a partial Citizens Dividend. The authors would not fund the voucher from rent but would replace the Medicare tax on wages with a national Value-Added Tax. People could spend the voucher on any health provider, which would stimulate competition. The reformers would also replace malpractice insurance with federal adjudicators who could also ban bad doctors. Lowering malpractice costs while raising competition should lower overall medical costs.
Except for the VAT, which would certainly grow over time, the plan appears to be an improvement over the present costly system that caters to rich dying people. A better funding source might be the source of so much illness – pollution, especially the burning of hydrocarbons; the feds could auction of emission permits and raise extraction leases to full market value. Once people grow accustomed to recovering the value of nature and receiving a universal benefit, they’ll be ready for total geonomics – no taxes on efforts while sharing all of society’s surplus.
Citizens Dividend key?
Fred Harrison, author, Ricardo’s Law (Oct 17): “The Alaska/Alberta model – population-poor/resource-rich – is not representative of most regions. Once people have paid for all the benefits they receive in the locations they occupy, I don’t see a surplus left to share out as a Citizens Dividend. ”
Editor: Every region has a metro center of sky-high values. Across America, people spend at least 40% of GDP on rights to or use of nature. Redirect that immense flow from a few owners and lenders to everyone.
John Watkins, founder, Simple Society (October 18): “A Citizen’s Dividend means every human in this country from birth to death would receive $600 a month – $900-$1,000 a month if children are not included.”
Editor: It’s not that kids are excluded, exactly. Say you did include them directly. Probably you won’t give $500 bucks monthly to an infant. Probably you’d give it to their parents to hold or spend for the kid, pretty much the same thing, or set up some bureaucracy to hold the dough til they come of age, which unduly complicates things. Plus, savings imply debt. You save their share, the bank lends it to somebody else, who has to pay it back with interest. Better than debt – which created money, absentee owners, and class historically – is a constantly falling cost of living. You can rev up the pace of techno-progress if you don’t save but spend all the rent today, so when kids reach maturity, their cost of living will be minuscule. Thus parents are not just spending their kids’ inheritance but also bringing about a better future sooner.
Mark Porthouse, Brit (Oct 21): “If the dividend goes to citizens, what about struggling immigrants?”
Editor: Better to struggle in a society that’s prosperous, open, and just – one’s bound to reach their goals sooner. Also, if citizens share rent, eventually, the idea will spread, even all the way back to the immigrants’ homeland; at that point, they’ll no longer have to emigrate, as their homeland will be prosperous, too.
John Kromkowski, Baltimore lawyer (Oct 3): “If the Citizens Dividend is the solution, what would it matter economically how the CD is funded: by Income Tax, by Land-Value Tax, by Real Estate transfer tax.”
Editor: If the source of the CD is not site values, then paying the CD would just inflate site values. To recover site rent, you don’t need LVT. The mechanism could be the deed fee, collected annually, like some states do for cars. Or try a land use fee. Or Land Dues. Also, recovering site values motivates the recycling of sites, which increases housing supply, lowering the cost of housing, letting the CD go further. The CD is a dividend, literally, a share of regional site values. If local land values are high, your CD is high; so, the less affordable the land, the fatter your CD.
Alanna Hartzok, Pennsylvania activist (Oct 17): “One other way is to join LVT to the Peoples Budget process. People could then decide what services to fund and how much to put into CDs.”
Editor: Put the Budget on the Ballot was a campaign I waged a couple decades ago with our VP Gary Flo now at the U of Vermont. We got a little ways with the Greens. It cheered us greatly to see some Brazilian towns (in the commie south) adopt the reform. While I no longer devote much energy to it, certainly I would not oppose it. One drawback to combining the political and the economic is that it’s biased towards those who are more political, who like the sound of their own voice, who like to stand up at meetings and argue. A CD is much cleaner, sparing those who’d rather get on with life and leave the debates to the barbershops.
Bent Straarup of Denmark, a nation that has had more LVT than most countries (October 20): “I so agree with you! Thank you for your arguments on simplicity and equal shares to every one! The point is to me that we should not expect every citizen to go deep into this subject. Everyone should, however, understand that he or she has a birthright to fight for.”
Richard Reid, Oregon reformer (November 14): “The builders claim home ownership is the American Dream. We won’t make much progress without reclaiming the rhetoric. Millions get diverted to subsidize development – go Intel! Growth could be sustainable if it pays its own way, meets community needs, spreads the wealth. That’s why I like your Citizen Dividend so much. If people saw the whole picture, they’d get angry. A simple cartoon, if drawn fairly and clearly and placed in the right places in public discourse, would make it difficult for the real estate industry to push back even with their millions in ill-gotten gains. Thanks again for keeping the Geonomist going. It’s so very good to know that progress is continuing around the world.”
In the media, on a podium
Howard Kronish, Portland, ret (October 5) on Lewis & Clark College’s environmental conference: “You got the land aspect of the environmental movement just right. I could see the preparation it took to fashion the brief talk into the main topic at hand. I really enjoyed your presentation, as I think the audience did too. I was observing their concentration and interest. It wouldn’t surprise me if you get many inquiries from your talk. Too bad you didn’t have more issues of The Geonomist on the table for the audience to take.”
Editor: At the beginning of the day, the table had a pile of newsletters. Their disappearance gives me hope!
The American Journal of Economics and Sociology in July and a new book, Natural Resources, Taxation & Regulation, edited by Laurence S. Moss, published my annotated bibliography co-authored with Tom Gihring, “Financing Transit Systems Through Value Capture”. It’s also reprinted by the Urban Land Institute and posted at the Victoria Transport Policy Institute website. Bill Sell, a Milwaukee businessman bitten by the land-tax bug, in three interviews with his County Supervisors and/or staff, peddled his essay and my transit bibliography.
The editorial team of Re-public has decided to publish my essay, Beyond Ownership, in their forthcoming special issue, ‘The promise of the Commons’, in both English and Greek. The Portland Tribune printed our letter (September 21) that urged putting the property tax shift on the ballot. Wetzel Dave, Vice-Chair, the Mayor’s Transport for London, wondered if I had available a short essay on using rent to fund a Citizen’s Income. In fact, I’ve a stable of pre-used articles that I’d happily provide anyone.
Newcomers, old stayers
The fall Geonomist elicited enough renewals and newals to cover the costs of copying and postage: from super stalwart Jing Chen (U N BC economist); stalwarts Chuck Metalitz (IL activist), John Morales (MO ret. Panama Canal); sustainers Stephen Bezruchka, MD (Seattle activist), C. Lowell Harriss (NY ret. prof), Heather Remoff (PA author); supporters Karen Harding (OR activist), Joan Sage (Philadelphia activist); and subscribers Meta Heller (WA retiree), Howard Kronish (Portland retiree), 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.
WHERE FROM HERE?
Free solutions newsletter
John Watkins, founder, Simple Society (October 7): “The fall issue of The Geonomist is exceptional. Hard work too, I’ll bet. It’s interesting the way you fund your efforts; you must live in doubt all the time. One of the benefits of your membership in The Alliance is that you can give up to 50 free subscriptions to Simple Solutions every month. If any of them ever gives a gift subscription to a friend, or orders a transcript of one of our forums, your Forum on Geonomics earns 30%. It starts small but can grow fairly large.”
Editor: Check out John’s good work at http://simsoc.org. If you’d like a trial subscription to his newsletter, please get in touch.
Make majorities move
Alan Durning, founder of Sightline Institute, nee Northwest Environment Watch, posted (September 18): “A 2003 survey of legislators and local elected officials found that some 63% believed that land-value (or split-rate) taxation would be a positive stimulus for urban development.” (Via Mark Monson) Are your elected representatives among the majority? Are they acting on their beliefs? Our supporter Al Hartheimer is helping his new governor act positively. The governor-elect of Massachusetts has on his Transition Committee Working Group for Economic Development a friend of Al named Michael Wilcox. To turn Massachusetts around, Al suggested instituting a state land tax while reducing the state income and sales taxes. Michael wants to know who else think this is a good idea. Besides telling him, if you know anyone on any of the governor’s other transition committees, write to them directly; if not, submit your thoughts at http://patrickmurraytransition.org. Let Michael Wilcox know at mfw at mfw.us that there are lots of people who think these are good ideas. And cc Al at ahartheimer at yahoo.com.
What you can do
What you can do Meta Heller, Olympia WA retiree (October 20): “Eventho’ I live in subsidized senior housing and would otherwise be out on the streets, I send $15 (not $50). However, send me a T-shirt and I will wear it in the legislature where I will testify for tax reform.”
Editor: Next batch of T-shirts, you definitely get one. Anyone else so eager? However much you can afford, it all helps us highlight a path to a better world. Send what you can; we’ll do even more to deserve it. Happy Winter Solstice of 2006!
Dear Forum on Geonomics (an educational IRS 501(c)(3));
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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.
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an alternative to conventional land trusts. Just as it seems some functions should not be left to the market – private courts and cops invite corruption (while private mediation is fine) – just so some land should not be left in the market. That said, sacred sites do not make much of a model for treating the vast acreage of land that we need to use. So the usual trust model, which is anti-use and counter-market, can not apply where it’s needed most. Trust proponents worry about ownership and control – two very human ambitions – but they’re not central. Supposedly, we the people own millions acres – acres that private corporations treat as private fiefdoms – and conversely, the Nature Conservancy owns wilderness the public can some places use as parks. So, the issue is not who owns but who gets the rent – ideally, all of us.
Ralph Borsodi years ago offered “trusterty” in place of property: 1, claim publicly, 2, occupy privately, 3, use sparingly, and 4, compensate mutually. Pay in according to your land’s value and get back a share equal to everyone else. It works better than relying on good intentions. Land trusts last until the idealists die out, or sooner if its site values are high. Those members turning against their trust should get those land values, but no greater share than anyone else in their society. That’s the principle so hard to get out and understood.
The Economist on housing
You’ve heard it here before, but now the mainstream is catching up (below and Paul Krugman inside). Their view of the future at last matches ours, yet their view of the past is still hazy, claiming the global boom in house prices has been driven by two common factors: historically low interest rates and stockmarket implosion making property an attractive alternative. While after the tech bubble burst the central banks did drop their rates down to near zero, it’s also true that home+site prices were due for a fall anyway. They have fallen roughly every 18 years, for nearly two centuries, ever since the Industrial Revolution really got kicking. Land cycle theorists predicted the coming crash ages ago. Even Bush’s ex-advisor, Greg Mankiw of Harvard, did – 17 years ago. Nevertheless, welcome The Economist (June 16), to the club; better late than never.
“The total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries’ combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America’s stockmarket bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history.
The glaring exceptions are Germany and Japan, where prices have been falling; Japanese property prices have dropped for 14 years in a row, by 40% from their peak in 1991.” Germany may have avoided a bubble because their banks require much more down payment than most others elsewhere. Japan’s real estate cycle is ahead of the West’s and rather than let their economy start a new phase, the government has let banks carry old losses as assets, keeping potential customers wary of borrowing from shaky lenders.
Going with the more popular trend, “home prices continue to rise by 10% or more in half of 20 studied countries. Over the past year, growth has reached 9% or more in Italy, Belgium, Denmark, and Sweden. Both France (15%) and Spain (15.5%) have faster house-price inflation than the United States. By contrast, some housing booms have now fizzled out. In Britain, house prices grew 20% in 2004 July but slowed to 5.5% in the year to May. In Australia, the 12-month rate hit 20% in late 2003 but stalled at only 0.4% in the first quarter of this year.
In many countries, house prices and rents are diverging. The ratio of prices to rents is a sort of price/earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier. House prices have hit record levels in relation to rents in New Zealand, France, the Netherlands, Ireland and Belgium. The ratio of prices to rents in America is 35% above its average level during 1975-2000 and 50% or more in Britain, Australia and Spain. House prices are also at record levels in relation to incomes in these nine countries. This suggests that homes are even more over-valued than at previous peaks, from which prices toppled.
After many previous house-price booms, most of the adjustment came through inflation pushing up rents and incomes, while home prices stayed broadly flat. Unlike share prices, house prices tend to be somewhat sticky downwards. As long as owner occupants can afford their mortgage payments, they will stay put until conditions improve.”
This time, prices were driven up not by need so much as speculation. “In America, 23% of all houses bought in 2004 were for investment, not owner-occupation and last year 42% of all first-time buyers and 25% of all buyers made no down-payment on their home purchase; in those states with the biggest price rises, adjustable-rate mortgages (ARMs), which leave the borrower exposed to rising interest rates, have risen to 50% of all mortgages.” When at last wanna-be buyers and renters can no longer afford the latest record prices – a point apparently now reached (British first-timers now account for only 29% of buyers, down from 50% in 1999) – over-exposed investors will sell. “House prices will not collapse overnight like stockmarkets, but over the next five years, several countries are likely to experience price falls of 20%.
Or more. The International Monetary Fund, analyzing house prices in 14 countries during 1970-2001, identified 20 examples of busts, when real prices fell by almost 30% on average (the fall in nominal prices was smaller). All but one of those housing busts led to a recession, with GDP after three years falling to an average of 8% below its previous growth trend. America was the only country to avoid a boom and bust during that period. This time it looks likely to join the club.” (via Bernard Rooney)
FROM THIS PEN’S PERCH
To geotopia in 60 secs.
Summer days might’ve been long but summer time was way too short; now where can one swim? Leaves already look eager to leave. Some fine fall day, strolling thru them, ankle deep, ponder what’s herein. Unlike past issues, this one has long articles, three of them: the first from The Economist echoing our timing on the coming crash, the second from The LA Times on the sorry state of my beloved oceans, and the last an exchange with a new member on the impact of geonomic reform. Humans often think that when things go wrong, we must respond with doing something wrong – drastic situations call for drastic measures – the assumption being that justice is impotent, a luxury reserved for when things are going right. But could the Creator have been so careless? To paraphrase Gandhi, there is no way to justice, justice is the way. There is no shortcut other than getting it right the first time. So the sooner we geonomize the earth, the better for all life. Merry Fall Equinox.
World’s richest increase
Half of the 20 richest people in China are in real estate; all have a net worth over a half billion dollars and work closely with government and state-owned banks. But in the capitol city of Beijing, 70% or the population cannot afford a mortgage on a home; protesters and boycotters receive death threats and death (The Wall St Journal, June 12). In 2005, the number of global millionaires — individuals with at least $1 million in cash and investments, beyond the value of their primary residence — rose 6.5% over 2004. The combined wealth of these wealthy jumped 8.5%. Global millionaires last year held a combined $33.3 trillion in wealth, nearly double the $16.6 trillion they held back in 1996, the first year researchers from Merrill Lynch and Capgemini began keeping track. Last year continues the wealth consolidation trend reported over the last 10 years. Those fortunates with at least $30 million in financial assets saw their ranks leap 10.2% to 85,400; they represent 1/100th of 1% of the world’s adult population. They hold 24% of the world’s financial wealth and own about one third of the combined wealth held by the world’s 8.7 million financial millionaires. (The newsletter Too Much, via Ed Dodson July 2) That’s not the product of hard work or good luck but of insider favors from friendly governments.
World’s priciest cities
Wealthy people from Europe, America, Asia, and especially the Middle East have pushed up prices, making London the new priciest city on the planet. In the old number one, New York, outsiders own a third of multi-million dollar residences; in London, they own just over half. In The Big Apple, prime real estate costs “only” $1,900 per square foot and super prime is $5,100; in the home of Apple Records, it’s now $2,300 and $5,715, respectively. A Middle East tycoon paid over $60 million for a home; one from India paid over $120 million. (The Olympian, Sept 3; via Meta Heller) Another survey, aimed not at owners of corporations but at their employees and which includes other items in the cost of living besides housing, places London fifth and New York tenth. The priciest city from their perspective is Moscow, trading places with Tokyo which dropped to third. Hong Kong, which exists on public land, is fourth while Beijing, China’s much bigger capital, is fourteenth. As wealthy expats pump up housing costs in top tier cities, so do well-paid working expats swell housing prices in all major capitals. (The Oregonian, June 26) Most governments try to tax the rich in their midst, but taxes often end up being counterproductive – except for the tax on site values. As long as you tax land, you don’t have to worry about capital fleeing anywhere.
Attack of The Blob – really
Giant jellyfish have been a problem for fishing and coastal communities on Japan’s west coast. For the first time, a mass of jellyfish blocked a filter in a seawater cooling system in a nuclear power plant in Japan, automatically shutting down the water intake system. The plant operators were forced to lower the output of its reactors until workers removed the jellyfish mass. (BBC News, July 20)
Mediterranean bathers were put on jellyfish alert this summer. The chances of encountering a jellyfish rose; concentrations of jellyfish were found at more than 10 per square metre in some areas off the Spanish coast. Some Spanish beaches were closed; Sicily and North Africa were also badly affected. As huge swarms of the creatures invaded coastal waters, at least 30,000 people were stung since summer began. Coastal waters were warmer than usual, because of the hot weather, and saltier than usual because of low river flows; the offshore waters which jellyfish usually inhabit were drawn in closer to the coast. And overfishing removes the jellyfish’s predators and its competitors from the sea. (BBC News, Aug 8)
The population of big fish has declined by 90% over the last 50 years. The global catch has been declining since the late 1980s. Humans are fishing down the food web. Fishermen first went after the largest, such as tuna, swordfish, cod, and grouper. When those stocks were depleted, they pursued smaller prey lower on the food chain. We are eating bait and moving on to jellyfish, already popular in China, and plankton.
Overfishing and destruction of wetlands have diminished the competing sea life and natural buffers that once held the microbes and weeds in check. Fish, corals, and marine mammals are dying while algae, bacteria, and jellyfish are growing unchecked; the rise of slime is returning the seas to their primeval state of hundreds of millions of years ago. The modern economy’s effluents – nitrogen, carbon, iron, and phosphorous compounds – curl out of smokestacks and tailpipes, rinse off fertilized lawns and cropland, seep out of septic tanks, and gush from sewer pipes into the sea. Modern industry and agriculture produce more fixed nitrogen — fertilizer, essentially — than all natural processes on land. These pollutants feed excessive growth of algae and bacteria.
* On Florida’s Gulf Coast, algae blooms are 10 times more abundant than they were 50 years ago. Toxins from these red tides have killed hundreds of sea mammals and caused emergency rooms to fill up with coastal residents suffering respiratory distress.
* Off the coast of Sweden each summer, blooms of cyanobacteria turn the Baltic Sea into a stinking, yellow-brown slush that locals call “rhubarb soup.” Dead fish bob in the surf. If people get too close, their eyes burn and they have trouble breathing.
* On the southern coast of Maui in the Hawaiian Islands, high tide leaves piles of green-brown algae that smell so foul condominium owners have hired a tractor driver to scrape them off the beach every morning.
* North of Venice, Italy, a sticky mixture of algae and bacteria collects on the Adriatic Sea in spring and summer. This white mucus washes ashore, fouling beaches, or congeals into submerged blobs, some bigger than a person.
* Excess algae has wiped out 80% of the corals in the Caribbean, despoiled two-thirds of the estuaries in the United States, and destroyed 75% of California’s kelp forests, once prime habitat for fish.
Toxins from the algae move through the food chain and concentrate in the dietary staples of marine mammals. The last 25 years has seen a steady upswing in beach strandings and mass die-offs of whales, dolphins, and other ocean mammals on US coasts. More than 14,000 seals, sea lions, and dolphins have landed sick or dead along the California shoreline in the last decade. So have more than 650 gray whales along the West Coast. In Maine two years ago, 800 harbor seals, all adults with no obvious injuries, washed up dead. In Florida, the carcasses of hundreds of manatees have been found in mangrove forests and on beaches. If the sea is not healthy for these sentinels, it won’t be good for us either.
Midway, an atoll halfway between North America and Japan, has no industrial centers, no fast-food joints with overflowing trash cans, and only a few dozen people. Albatross lay their eggs and hatch their young there each winter. The adults forage at sea and bring back food for their chicks and all manner of plastic debris, mistaking it for food. Albatross feed their chicks about 5 tons of plastic a year at Midway. Of the 500,000 albatross chicks born there each year, about 200,000 die, mostly from dehydration or starvation, their stomachs filled with plastic.
An estimated 1 million seabirds choke or get tangled in plastic nets or other debris every year. About 100,000 seals, sea lions, whales, dolphins, other marine mammals and sea turtles suffer the same fate. About four-fifths of marine trash comes from land, swept by wind or washed by rain off highways and city streets, down streams and rivers, and out to sea. The rest comes from ships. Much of it consists of synthetic floats and other gear that is jettisoned illegally to avoid the cost of proper disposal in port. (LA Times, July 30 – Aug 3)
As industrial activity pumps massive amounts of greenhouse gases, it alters the weather. The USA sweated this year through its hottest summer in 70 years, with temperatures not seen since the Dust Bowl of the 1930s. The continental USA had an average temperature of 74.5 degrees. It was the second-hottest summer temperature the government has recorded since it started keeping track in 1895. The only one warmer – by about two-tenths of a degree – was in 1936. (USA Today, Sept 14)
Atypical northerly breezes along the Oregon coast push out warm water, bringing up cool water lacking in oxygen. Each summer since 2002 it has turned water above the continental shelf into a dead zone, one of 150 dead zones worldwide. Oregon’s this year’s had the least oxygen ever measured here, a near complete absence, a situation rarely known in the world’s oceans. The layer was thicker and far larger, a 70 mile stretch, covering at least four times more area than in previous years. Undersea cameras aboard a research sub found thousands of dead crabs and starfish, and no living fish, carpeting the ocean floor. (The Oregonian, Aug 10)
One manmade greenhouse gas, carbon dioxide, is being absorbed by the oceans at a rate of nearly 1 million tons per hour – 10 times the natural rate. When carbon dioxide mixes with seawater, it creates carbonic acid, the weak acid in carbonated drinks. The seas are more acidic today than they have been in at least 650,000 years. Increased acidity reduces the abundance of calcium carbonate, which corals and other sea animals need to build shells and skeletons. It slows the growth of the animals within those shells. Even slightly acidified seawater is toxic to the eggs and larvae of some fish species. In others, including amberjack and halibut, it can cause heart attacks. It can asphyxiate animals that require a lot of oxygen, such as fast-swimming squid. It also melts away the bottom rungs of the food chain – tiny planktonic plants and animals that provide the basic nutrition for all living things in the sea – disrupting fisheries. Unharmed are algae, bacteria, and other primitive forms of life that are already proliferating. At the current rate of increase, by the end of this century ocean acidity will be 2 1/2 times what it was before the Industrial Revolution began 200 years ago.
What we allow to flow into the sea will come back to bite us. You can bet on it. (LA Times, July 30 – Aug 3) Want people to stop being careless, to start being careful? Talk money. Charge people for both their depletion and their pollution, not to mention for their exclusion, their private use of some portion of Earth. Charge people for what they take, not for what they make – remove taxes from earnings, enterprises, and buildings. From the revenue raised, pay people an equitable share. Coming from the earth’s worth, it’ll make sure people care about the earth’s health.
Oil again takes in billion$
A US official responsible for Gulf Coast oil leases says he was told in 1998 to remove a provision concerning royalties, an action that is allowing oil companies to avoid billions of dollars in payments (USA Today, Sept 14).
Exxon, the world’s most valuable company based on market value, reported a quarterly profit of $10.4 billion for the spring, 36% more than a year ago and just shy of its record $10.7 million posted in 2005 Q4. It has posted four of the five largest quarterly profits ever. ConocoPhillips reported $5.2 billion, a 65% jump. The six largest oil companies are expected to post more than $36 billion profit. Their 27.8% higher second-quarter earnings beats all nine other industry sectors except for utilities (28% estimated growth). Energy’s strong Q2 comes after 36.3% growth in the Q1, which topped every other industry. Roughly a third of the earnings growth for companies in the S&P 500 came from energy companies. The S&P 500 is expected to post 9.9% earnings growth in Q2, ending 16 consecutive quarters of double-digit earnings growth. (USA Today, July 28)
Oil and gas extractors as a group show much higher profits per employee than any other major industry. They receive something like 40% of all profits in the Fortune 500, with only 10% of the employees. High profits per employee are a sure indicator there is high surplus value generated not by business acumen but by high demand and low supply. (“A Severance Tax on California Oil?” by Mason Gaffney, July 2006)
Car taxes drive clients off
Taxes matter. To avoid them, people have chopped down fruit trees, boarded up windows, bricked up fireplaces (giving themselves pneumonia), and gone miles out of their way to rent a car. To pay for a new stadium (which get 94% of their financing from public subsidies), Kansas City decided to tax car rentals, believing visitors would pay. While they do, the other half of the market – local residents – give their business to rental offices out of the jurisdiction, going as far as five miles away to avoid a $4 per day charge. Cars rented by residents in the taxing jurisdiction fell by 41% and days rented by 69%, costing Kansas City thousands of dollars each month in lost tax revenue. To make up the shortfall, government usually levies another tax or fee. This increase in taxes, fees, and rates by local and state governments more than balances out the decrease in federal income taxes. This tax shift benefits most high-income earners and burdens most low-wage earners. (The New York Times, July 17) Of course, the extra complexity, collection costs, and injustice are not necessary. Society could lose all taxes and instead raise to full market value what it charges for the privileges it grants. For deeds to land, each year charge the annual rental value of the location. Do the same for leases to resources, licenses to the EM spectrum, franchises to utilities, liability limits to corporations, charters to banks, etc. You’ll have more than enough for government – enough for a dividend, too.
Making $160k, needing aid
People raking in up to $160,000 a year qualify for housing assistance in Santa Barbara CA. There a condo on the open market would cost $1,000,000. So a rich private charity, the Santa Barbara Foundation, is lending money for a project that will sell units at half market value. It’s to stem the erosion of the middle class, many of whom must commute from two hours away. (The Independent, Aug 31) Aspen CO, where vacant lots cost $1,000,000, had to do something similar. Whereas the Santa Barbara case uses tax-exempt charitable monies, Aspen uses funds raised mainly by a tax on property when it changes hands. Better than either band-aid would be to recover all the local site values then share them among resident voters. When site values rise, so would one’s share.
Inflation at 11-yr high
U.S. core consumer inflation matched an 11-year high back in June; for the third straight month it increased 0.2%. Core inflation, excluding food and energy, has risen 2.4% in the past 12 months, matching the largest year-over-year gain since the spring of 1995. Consumer prices including food and energy also rose 0.2% in June, and are up 3.5% in the past year. After adjusting for inflation, real consumer spending rose 0.2% in June, the fourth straight month of tepid spending. The Federal Reserve has raised interest rates 17 times in the past two years, ostensibly to curb inflation. (CBS MarketWatch, Aug 1). Yet over that period, inflation did not recede but quickened. Is that just coincidence? Or can it be that higher lending rates do not slow inflation but cause or worsen it? Actually, making debt more expensive can worsen inflation, but what causes it is the excess money lent into circulation. Reduce debt, and you’ll reverse inflation.
Jewelry fabrication fell by over 400 metric tons, or nearly 30%, with the biggest drops in India and the Mideast. After reaching a 26-year [sic] high in 2006′s first half, gold for December delivery fell five consecutive sessions, losing a cumulative $52.60, hitting its lowest level since June 19, as the US dollar gained against key currencies. Then prices climbed $2 to close at $588 an ounce on the New York Mercantile Exchange. As soon as the stock markets come undone, investors will push up the price of protective metals into the next range of highs and lows. (CBS MarketWatch, Sep 14)
NW housing peaking
Sandwiched between Seattle and California, Portland was supposed to follow the housing market, not lead it. Yet from June to July, when prices typically rise, Portland’s median home price fell from $280,000 to $274,700. Still, that was 14.5% over last July’s price. (The Oregonian, Aug 16) Statewide, from April-June 2005 to April-June 2006, home prices were more typical of the region. Led by towns close to ski slopes, Oregon rose 19.5%, the fourth highest jump of any state. In sixth place, Washington rose 17.4%. (The Oregonian, Sept 6) Having housing costs lower than California’s is why in a ranking of tech hubs, Seattle and Portland are near the top while the cradle, Silicon Valley, where less than 15% of homes are affordable by median computer professionals, is at the bottom (The Olympian, Sept 3, via Meta Heller).
Housing bubble losing air
From Q2 2005 to Q2 2006 in 26 metro areas, mainly in the rust belt, home prices fell – 10 more areas than in the first quarter (USA Today, Aug 16). Overall, home prices rose 1.17% from Q1, yet the gain was the smallest since the end of 1999. Last year’s Q2 gain was 3.65%; the difference is the biggest decline since 1975 when the government started keeping track of home prices. Still, home prices grew faster the last 12 months – by 10.06% – than did prices of other goods and services at 4.41%. From June, sales of new homes fell 4.3%, the largest drop since February; sales of previously owned homes fell 4.1% to a 2 1/2-year low. Unsold homes climbed to a 7.3-month supply, a 13-year high. (USA Today, Sept 5) Sales of new homes sales plunged 21.6% in July from twelve months ago. (CBS MarketWatch, Sept 2) In April-June, 12.2% of borrowers with adjustable loans, which reset up, were late paying their loans, the highest level since the end of 2003 (USA Today, Sept 14).
Banks & lenders at risk?
Since sellers and lenders pay them, most appraisers feel pressure to overstate the value of real estate. But when housing prices fall, both buyers and mortgage holders are left with an asset worth less than what’s owed. Owners can’t borrow against that, and banks see their shares lose value. (The Wall St Journal, July 22-23) The level of the banks’ exposure to real estate is unprecedented, representing close to 60% of their earnings either directly or indirectly. The extent to which cash-strapped homeowners have relied on debt and risky exotic options to finance both their mortgages and their consumption is also off the scale. Adjustable-rate mortgages, or ARMs, averaged roughly 30% of all first mortgage originations in 2005. In 2006, $330 billion worth of ARMs will adjust upward and $1 trillion worth will reset by the end of 2007.
Should home prices decline as they seem poised to do, many might end up owing more than the value of their homes; in case of foreclosure, they’ll leave the lender sitting on a real loss. (CBS MarketWatch, Sept 2) Paul Krugman (NYT, Aug 25): “This is a recipe for a major bust, not a soft landing. It could be both a deep and a prolonged bust. As far as I know, Nouriel Roubini is the only well-known [emphasis added] economist flatly predicting a housing-led recession in the coming year (we did, too, last year). Housing has been the main engine of economic growth over the past three years, and with that engine now going into reverse, it’s hard to see how we can avoid a serious slowdown.” (Via Alanna Hartzok)
FROM THE OP-ED PAGES
Tories and Libertarians
The British Conservative Party is considering replacing several taxes with one single-rate property tax. Since most of the value in property is in the land, the tax would recover large amounts of ground rent. This submission to the party’s Tax Reform Commission by the influential Conservative Bow Group would exempt the cheapest 20% of properties, worth £70,000 or less. Thousands of low-income homeowners would pay no levy while wealthy homeowners in London and England’s South East would see their annual bills rise and would pay more than the rest of the country. (UK Times, July 24)
Carl S. Milsted, Jr., the leader of the movement to reform the Libertarian Party and a senior editor of The Free Liberal, an independent journal distributed in the Washington, DC area (August 16): “Illegal immigration, job outsourcing, trade deficits, budget deficits, workers in poverty, the welfare trap, an insanely complicated tax code. They could all be substantially fixed by a citizen’s dividend. Everyone gets money from the government, but through dozens, if not hundreds, of different mechanisms. The result is a bureaucratic nightmare which makes our businesses less competitive, weakens our moral fiber, and makes life less pleasant generally. Followers of Henry George advocate a citizens’ dividend based on ground rents. I personally prefer replacing income and labor taxes with a mix of excise, property (including copyright and corporate value), and possibly sales taxes, combined with a citizens’ dividend.” (Via Mark Monson) If Carl Milsted realized how much rent is spent on other natural resources and privileges, would he still promote taxes on our efforts?
FROM THE ARCHIVES
The Plague’s silver lining
In 1349, “the landowners were having to pay high wages to labourers to make them work on the farms. Because so many labourers had died from the plague, those left were in great demand and were able to negotiate large payments.” This is from A Plague on Both Your Houses, on page 251, by Susanna Gregory, pseudonym of a Cambridge fellow and former police officer. See how some intuit the connection between land and wages? It got so peasants could work 14 hours a week to support their families – a tolerable workweek – in the Dark Ages! It works the other way, too. Instead of decreasing the labor force, one could increase the amount of useful, available land. Since they aren’t making it any more, you could recover land’s rent from owners. That’d spur them to not hoard land and use what they take efficiently, leaving plenty for others at prices others could afford. More land for farmers means less competition for other jobs, so wages are high wherever land is plentiful.
Turgot: de-tax or de-throne
Anne-Robert-Jacques Turgot (1727-1781) was a major figure in pre-revolutionary France, an exemplar of the Enlightenment. Turgot developed the four-stage theory of economic and social development from hunter-gatherer, to pastoral, to agricultural, and finally to market society. A forerunner of Marginalist Theory, he conceived of the idea of diminishing marginal productivity of factor inputs. Increasing the quantity of some factors increases the marginal productivity until a maximum point is attained. Past this point, the marginal productivity will decrease, fall to zero, and ultimately will turn negative. Each increase in input would be less and less productive. Essentially, all that Turgot lacked was the idea of the marginal unit. His analysis of savings and investment anticipated J.B. Say’s Law of Markets. As France’s Minister of Finance from 1774-1776, he told Louis XVI to cut government spending and to make taxes more equitable or there could be revolution. Turgot, in one of his Six Edicts of 1776, officially removed the controls on the prices and transportation of grain, flour, and bread. Like the physiocrats, he promoted free trade and advocated a single tax on the net product of land. He opposed protectionism and military conscription. Turgot proposed a hierarchy of elected assemblies going from the village up to the national level. Although he was sympathetic to American rebels, he did not recommend that they go to war. He also warned Americans that slavery is not proper and cautioned America about the possibility of civil war. (Le Québécois Libre, Montreal, No 186, July 30; Dr. Edward W. Younkins, Wheeling Jesuit University in West Virginia)
Development can happen
The White Man’s Burden by William Easterly is reviewed by Polly Cleveland. The title is from the Kipling poem. In his well-written, passionate, and witty new book, the author, a development economist, explains “Why the West’s efforts to aid the Rest have done so much ill and so little good … Who got the most standby [credit]s from the IMF over the last half century? Haiti, the Duvalier family (Papa Doc and Baby Doc) … The income of the average Haitian was lower at the end of the Duvalier era than at the beginning.” Third-world poverty does not arise from lack of capital or incapacity of local populations but from government by gangsters, warlords, and kleptocrats. Often, that is a colonial legacy. As a strategy for control, the colonials pitted groups against each other. Also there is the arrogance of “Planners”: academics like Jeffrey Sachs of Columbia or officials of the IMF, the World Bank, the UN, or Western governments. Planners create grandiose programs without investigating conditions on the ground or obtaining advice, requests, or feedback from intended beneficiaries. Then they provide assistance to those same bad governments. Much lending is worse than wasted; not only does it fail to reach the poor but it helps bad rulers retain power. Easterly highlights successful small projects of enterprising locals, whom he calls “Searchers.” Unlike Planners, Searchers carefully check out their “customers” and experiment with ways to deliver what they want. Successful outside aid is aid that supports such initiatives. Read Econamici – occasional emails with attachments or links – at www.georgiststudies.org. To receive it, contact Polly (email@example.com).
Krugman: Income gap ow!
Exxon has $36 billion cash on hand. Microsoft has $34 billion. All totaled at the end of Q1, the worth of the biggest 175 companies in Standard & Poors – cash and stock – topped $790 billion, about one fifth of the entire stock market. Their cash on hand, $295 billion, is 7% of the market’s value. That’s the highest in nearly two decades – which is about the length of the land price cycle. Besides pay dividends, buy back their own stock, and pay bonuses to officers, what else can they do with so much money? (Wall St Journal, July 26) Halliburton, recipient of no-bid contracts from the Bush people for rebuilding in war zones and New Orleans, swelled its profit 50% from Q2 last year, going from $392 million to $591 million this year (USA Today, July 21).
Paul Krugman: In 2004 the real income of the richest 1% of Americans surged by almost 12.5%. Meanwhile, the average real income of the bottom 99% of the population rose only 1.5%. Even people at the 95th percentile of the income distribution – that is, people richer than 19 out of 20 Americans – gained only modestly. Real median family income – the purchasing power of the typical family – actually fell, and poverty increased, as did the number of Americans without health insurance. Getting a degree doesn’t improve your chances of bucking the trend; the real earnings of the typical college graduate actually fell 5.2% from 2000 to 2004. (New York Times, July 14; via Alanna Harzok)
NYT ran an Economic View by Anna Bernasek, “Income Inequality and Its Cost”. The consequences of this yawning income gulf are at least fourfold: (1) Noting that their CEOs are paid 821 times more than they get [visit Economic Policy Institute], workers get resentful and perform at less than optimum. (2) Not earning enough while witnessing more than enough out there generates stress which translates into health problems and again less efficiency at work. (3) With much more wealth than others comes much more power and the easy temptation to yield to corruption, as in two-class societies. And (4), the gap widens itself as beneficiaries win ever more government favors – until a recession shifts the political winds and new policies are put in place. (June 25; via Heather Remoff) If those new policies were geonomics, whose salient feature is a Citizens Dividend from social surplus, that would put an end to unearned incomes and close this cavernous gap.
Intellectual property free?
How much is intellectual property (IP) worth? Gates and other richest people on the planet owe their fortunes to IP. Oceantomo claims IP is 80% of S&P 500 market value, up from 17% in 1975. Nakamura estimated at least $1 trillion per year gross investment in intangibles, which are not identical to IP but similar. (from Chuck Metalitz; footnotes at menace.iblogs.com) Part of the value of IP comes from patents and copyrights that make it easier to exclude other designers and programmers. Just as deeds and titles prevent newcomers from utilizing sites in a new land, so do patents and copyrights prevent newcomers from utilizing insights in a new field of knowledge. Yet inventors and discoverers do not need these government granted monopolies; instead they can turn their being first into winning a big enough market share to keep ahead of the competition for the life of their idea. Meanwhile, to be a dog-in-the-manger and try to monopolize a new industry that way is normal. But imagine if Newton or Leibnitz had patented calculus; then mathematicians would have to pay either genius to legally run their numbers. Making others pay is fair – as long as one pays full value for one’s patent or copyright. That is, society would charge full value for any monopoly it grants – people do pay full value for private insurance – and use the funds to pay dividends to citizens. If Gates et al had to pay to exclude, they’d still be rich but not stinking rich. While Gates and friends would not need this dividend, others do. Getting their share, basement inventors, garage bands, and starving artists wouldn’t have to suffer but could contribute their creativity, too, to society, enriching all of us.
Deficit worse than Reps say
Add the deficit to the list of numbers that the government hands out as understatements, along with inflation and unemployment, while their GDP overstates wellbeing – which doesn’t stop economists from using these statistics as “hard data”. USA Today notes (Aug 3) Congress has written its own accounting rules – which would be illegal for a corporation. The federal government keeps two sets of books. The set the government shows the public has a deficit of $318 billion in 2005, or $2,800 for every American household. The set produced by the government’s accountants reports a deficit of $760 billion for 2005, or $6,700 per household. What the former leaves out that the latter includes are retirement benefits for civil servants and military personnel. The principles that corporations follow require reporting financial burdens when they are incurred, not when they come due, and setting aside funds and earning interest to pay for the future obligations. The books of the Defense Department are so “unreliable” that auditors refuse to certify them. While the official deficit since 1997 is $729 billion, the government has actually run a deficit of at least $2.9 trillion. The difference is equal to an entire year’s worth of federal spending. If Social Security and Medicare were included, the 2005 federal deficit would have been $3.5 trillion, and the losses since 1997 nearly $40 trillion. The Bush administration opposes including Social Security and Medicare since the government can back out of those obligations at any time. Combined with other new liabilities and operating losses, the government would have reported an $11 trillion deficit in 2004 — about the size of the nation’s entire economy.
Fed admits surge from land
In metro Portland, land for new houses costs six times what it did 15 years ago, up from $31,000 per acre in 1990 to $187,000 in 2005, an average brought down by including all undesirable sites. Land prices increased twice as fast as home prices. (The Oregonian, June 26) While most people refer to “housing costs”, economists sometimes admit the greater value is not in the building but in the underlying land. According to a Federal Reserve study by Michael Palumbo, chief economist in the Fed’s flow of funds section, and Morris Davis, a former Fed economist now at the University of Wisconsin, what’s rising is not the value of the house – which ages and wears out – but the location, and that trend is likely to continue. In the 46 biggest metro housing markets, land’s share of property prices increased on average to 51% in 2004 from 32% in 1984. Regionally, underlying locations in more expensive housing markets claimed a greater share of the total, but residential land just about everywhere in the 1998-2004 period appreciated rapidly. And since 1984, most large cities have gone through one discernible price cycle in which residential land lost value for several years, usually after several years of rapid appreciation (which we’ve recently had). In real numbers, land prices have generally taken several years to go from peak to trough, and the subsequent recovery from these price declines has generally occurred at a more gradual pace. (Wall St Jnl online, June 20) Actually, since the assessment data and appraisal data that one must use is usually biased to give buildings a greater share of the total property value, land has absorbed an even greater portion of the rising value than estimated above.
Golden State is oily, too
This November voters will turn thumbs up or down on Prop. 87, a severance tax measure. Dr. Mason Gaffney of UC Riverside offers background excerpted here. California has long been and remains a major oil-extracting state. Its fields were exploited not long ago when oil was at $10/bbl or less and natural gas was a drag on the market. There is much surplus value there. Certain California local governments recover healthy revenues from oil fields. California’s State Board of Equalization helped counties assess oil fields for property tax purposes (showing, among other things, that it can be done). And yet California is the only state, major or minor, with no severance tax. Alaska distributes a generous social dividend annually from its oil revenues. It also keeps building a “Heritage Fund” for the future, as does Alberta and Wyoming and New Mexico.
Land tax seems disruptive
William Sell, Milwaukee businessman and activist (Jul 27): “Who are the stakeholders in the present system that would resist a higher tax on their land?” Editor: Just about anybody who has land: homeowners, speculators, developers, plus lenders, defended by those academics who’re in the mold of the old priesthood who’d fry you for learning how to read. Then there’s the well-meaning reformers who’d rather tax the rich – economic science be damned. So, progress has been laggard, but proposing a share of recovered rents for all voters could change that. Sofia: (Jul 6): “I attended your talk at The Onion in LA a year or two ago. The Property Tax Shift (PTS) seems so disruptive. Wouldn’t it cause foreign investors to divest US assets, as our manufacturing sector is shrinking? As land is the only ‘safe’ place for investment, foreign investors would put their dollars in land in countries without a PTS. Result: dollar crash.” Editor: Depends if foreign money is in land that’s developed or unbuilt. Invested in developed land – in buildings – foreign owners could actually catch a tax break. And in cities of de-taxed buildings, economies do better; owners of buildings might even earn more. Further, foreign countries that don’t collect land rent are typically very unstable, not the ideal place to invest. Also, if the dollar loses value relative to other currencies, then, all things being equal, we export more and draw more tourists. “Crash” might not be the best metaphor. Sofia: “Wouldn’t the PTS send capital not into small businesses but into mutual funds (globalized capital) and government bonds (money for war)?” Editor: The few places that have tried the PTS have shown just the opposite; they get investment in production and urban renewal for free (free of tax subsidies). Sofia: “Globalized capital takes jobs out of the US, undermining of the US economy.” Editor: Jobs are overrated. Productivity eliminates them, too. So does automation. So does immigration. People don’t need jobs. People need money. We’d be much better off with a Citizens dividend from society’s surplus and a shorter workweek. Sofia: “If there was no PTS, homeowners would at least stay in their (low-taxed) houses as they borrowed against their equity and slowly depleted their land’s value. Under a PTS, if small homeowners lose their jobs, they would quickly lose their houses.” Editor: Actually, just the opposite happens. Using the PT as a proxy for a Land Tax, wherever there is no PT, people lose their land and homes. Why? As the tax drops, the price rises. More people can’t afford land and homes. Those who already have one borrow more, sink deeper into debt, and lose more. Under a PTS, their land tax drops as their assessment of their land’s value drops, which it does as income drops. So keep assessments up to date. Sofia: “With current household debt, homeowners seem a very unreliable source of tax revenue. If the government relies mainly on the PTS, it would be in big trouble. Better to ‘cast a wide net’ and see what comes in.” Editor: But that “strip-mines the sea.” It’s like trying to inhale everything instead of just air; many gases can choke you. Places that specialize – that don’t tax everything that moves but mainly recover socially generated values – actually recover more revenue, because where you don’t tax work or buildings, there people want to work and build, which pumps up site values, the thing you are taxing. Sofia: “In a shrinking economy with layoffs, energy disruptions, and global competition, how do you sell the PTS?” Editor: It ain’t easy, which is why I try to couple the PTS to a Housing Voucher for all residents. Sofia: “The problem I see with your idea of a Housing Voucher is that it could be taken away by politicians.” Editor: Politicians have not been able to take away the Alaskan oil dividend or the Aspen housing assistance. The more examples, the more entrenched. Dr. John A. Sorrentino, Temple U (Jul 24): “Is there any ‘rule-of-thumb’ (somewhat like the Golden Ratio) for the percentage of land value that is land rent? I am working with data on one land-sale transaction and need some clever extrapolation.” Editor: First, “value” is not synonymous with price; it’s whatever people are willing to pay for the land. “Rent” is how much they’re willing to pay periodically. “Price” is how much they’re willing to pay upfront in a lump sum, usually about 20 years worth of rent. So all value is rent. Rent is dynamic value; value is static rent.
Neil Gilchrist, longtime Aussie geonomist (August 28): “Government will widen the land tax base and raise the rate on site value if it is politically safe to do so. If land dues can be paid by payroll deduction or bank debit weekly, fortnightly, monthly, quarterly, or annually, it will be less painful. If citizens (recognized by being on the electoral roll, in other words, voters) receive a Citizens Dividend (CD) by an annual check, then there will also be widespread support. Australia has a land value threshold which is supposed to exclude the poorer land owner. It adds a lot of complexity to the administration of our land tax. A CD is a better way of achieving the same objective and is obviously politically attractive.”
Michael Strong, CEO of FLOW (September 1): “You are delightfully relentless. I do find myself thinking about land tax and Georgist strategies in general more and more; not all the time, but the issues are much closer to the foreground than they were a year ago.
In the media, on a podium
Communitarian Letter #12 asked: “Do affluent nations have an obligation to provide less privileged nations with foreign aid?” Feedback printed August 31, by your editor: No. There’s no such thing as “affluent nations”. Lots and lots of poor people live within those borders. To date, so-called foreign aid has meant taking money from non-rich taxpayers in rich nations and giving it to non-poor people in poor nations. Aid might be appropriate short-term, as during emergencies, but not as an ongoing process – which merely ignores an ongoing problem. When Carlos Fuentes was here in Portland OR, he noted that 80% of the aid never reached the ground but was gobbled up by corruption. So even if aid were right, it’s not practical. What is practical is “free trade” – getting rid of tariffs and subsidies (like agri-business subsidies), but not getting rid of protection for environment and workplace safety. But because most people fail to distinguish between true liberty and mere license, instead of real free trade, we get favored trade and coerced transfer rammed down our throats. People who care must reclaim their language before they can rescue the world.
Craig Townsend (June 24; via Dave Wetzel): “I’m in Bangkok doing research; any citations (preferably books or refereed journal articles) of any literature on how land value increases or rent increases can be captured to finance mass transit improvements would be appreciated.” Editor: The Victoria Transport Policy Inst (in BC) posts my lengthy bibliography on just that topic: www.vtpi.org/smith.pdf. Craig Townsend (June 24): “Thanks very much, Jeffery. This was just what I needed.”
Thanks to generous support from the Henry George School, the Robert Schalkenbach Foundation, and the Lincoln Foundation, several of us grassroots activists were able to attend the annual conference of the Council of Georgist Organizations (in Chicago in July) where I presented a talk on marketing one’s writing that’s supposed to both enlighten and entertain. As usual, it was a delightful conference; spending time with like minds recharges the batteries. Plus, there’s always something to learn about the locale, transportation economics, and the like. Attending this year got me close to Milwaukee where I had initiated a tour for Dave Wetzel, lobbyist and public speaker par excellence. Many thanks to Bill Sell for making Dave’s visit happen, Tom Galloway for setting up the meeting with the mayor, and Mark Monson for co-chofering and moral support. Those days combined the best of work and play.
Newcomers, old stayers
The Henry George School of Social Science funded our local education work for the coming year. The Council of Georgist Organizations supported (and endured) my presence at their annual conference. The Robert Schalkenbach funds my editing of the e-monthly, The Henry George News. Our spring Geonomist elicited enough renewals and newals to cover the costs of copying and postage: from super stalwart John Morales (MO ret. Panama Canal); stalwarts Clay Berling (CA activist), Richard Biddle (PA teacher), Wendell Fitzgerald, (OR activist), C. Lowell Harriss (NY ret. prof), Ernie Kahn (MA ret. optician); sustainers Herb Barry (PA ret. prof), Bruce Oatman (NY teacher), Nic Tideman (VA prof); supporters Ted Gwartney (CT assessor), Bruno Moser (Vietnam caregiver), Rich Nymoen (MN activist), Danila B. Oder (CA activist), Elizabeth Tonsmeire (Portlander, nee Fairhoper); and subscribers Dr Steve Cord (MD ret. prof.), Dr Mason Gaffney (CA prof), Dale Gillis (FL retiree), Gib Halverson (WI fireman), Joe Johnston (NC ex-priest), Mary Rawson (BC retiree), 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.
WHERE FROM HERE?
Scripting a world we want
In Portland at Lewis & Clark’s Symposium on Environmental Affairs, to be held October 2-4, I’ll talk about how tax shifting, by saving people money, makes it easier to sell the green program and win real ecological progress. If you’re in the area, please join us.
If enough people enjoyed a book or movie, would they shift the paradigm? Can political change follow popular entertainment? Sure. Look how the book Uncle Tom’s Cabin helped end slavery. The movie Gandhi helped advance the peace movement. And note how presidents pretend to be John Wayne. Oops. So, OK, celluloid heroes can maintain the status quo, too. However, given that most people who vote no longer read, write, or think much, a movie might be the best way to reach them. Therefore, I’ve written three original screenplays to convey the ethic of sharing Earth’s worth in lieu of taxing efforts and subsidizing waste. They’re a sort of trilogy, each separated by at least a century. The oldest is a dramatic bio of Tom Paine, the man who penned the booklet, Common Sense, coined the phrase, “The United States of America”, and proposed a citizens’ dividend. The second is a contemporary comedy about the mafia who, in order to rake in more loot, force prosperity on a tropical nation by imposing geonomics. The third is a sci-fi time travel escapade of a couple of ne’er-do-wells accidentally sucked into Geotopia. All three scripts need lots more work. If you’d like to help with the revising or downstream the marketing, please do get in touch. A new story like Ecotopia might just be the impetus our movement needs.
What you can do
What you can do Harold Kyriazi, Pittsburgh medical researcher (Aug 14): “I got the t-shirt (gurus on mountain tops debating location compensation) and wore it to work. It occurs to me that the message should be on the back rather than the front. No one has time to read it while walking toward you. And people are embarrassed to stare at one’s body while walking toward you, but have no problem looking at others’ backsides.” Editor: You’re the second person to give me that feedback. Next time, will do. Everyone who gave at least $50 got a T-shirt. All amounts help us highlight a path to a better world. Send what you can; we’ll do even more to deserve it. Happy Autumn Equinox!
Dear Forum on Geonomics (an educational IRS 501(c)(3));
Here’s my tax-deductible yearly dues:The bottom line: Secure Earnings, Share Earth
Wearing pajamas outdoors in the winter, one wouldn’t expect to retain body heat. Yet people do try to sustain community while hemorrhaging its commonwealth. Losing it, residents must work more than necessary.
When residents import food and energy, they deprive others in the community of income. Yet the loss pales when compared to paying mortgages and taxes. A recent study of Oakland, CA found torrents of dollars pumped out of town, headed for the treasuries of distant capitols and the bank vaults of distant lenders.
While mortgages and interest elevate an elite elsewhere, they keep debtors on a treadmill at home. To those anxious over every next payment, how appealing is an economy no longer expanding its girth? And what’s their debt for? Credit? The total savings of all members of a community should suffice. Local bank “used to” be the norm.
The other major drain, taxes, at about 40% of the average worker’s income, usually total more than the value of government services received. And who receives them? Corporate loggers, miners, factory farms, and tractor trailers. Lose such subsidies, leveling the playing field, and local recyclers, family farmers, and freight haulers could compete. Their success would plug the visible leaks – imported food, energy, and materials.
While a community might not be able to command a distant capitol to turn off the subsidies, a locality may be able to avoid federal and state taxes. Besides Callenbach’s ecotopian secession, there are a host of legalisms for a wanton community to entice a big, hiring firm – tax breaks like TIFs, Redevelopment Districts, Enterprise Zones, etc. Why not use them to liberate not just one company but the entire community from outside taxes?
Cutting out outsiders’ taxes means the locality would have to take over providing the outsiders’ services: nuclear power plants, toxic dumps, scarifying freeways, submarines, whatever. To pay for whatever desired services, from where will the city or county get the money?
From themselves, their commonwealth. It’s the money they spend on the nature they use, the prices and rents paid for sites and resources.
How can communities capture that flow of natural values and keep it circulating locally? Get local government to charge some kind of land use fee. Depending on state law, the locality could either replace the property tax with a site value tax, raise the fee for defending deeds, levy a fee for resource use, and/or resurrect ancient land dues.
No matter what the mechanism, as the community collects more of its value, that leaves less for owners to capitalize into price; as land dues rise, land prices must fall. Cheap land means buyers need borrow less, shrinking mortgages. Less demand for credit also drops the lending rate. Deflated profits makes real estate less attractive to mega-banks, more suitable to local lenders.
Not only would it plug the leaks of loans and outside taxes, collecting land value would also spur efficient use of land, making cities compact, less auto-infested (see “Suburbonomics” in the summer issue of Terrain at www.terrain.org). Shifting taxes from homes (and other useful things) to locations is called “the sprawl tax” by Northwest Environment Watch. The property tax shift has become the cutting-edge proposal of the Sierra Club, Friends of the Earth, Sustainable America, and others. Ernest Callenbach wrote that if he had heard of site-value taxation earlier, he would have included it in his classic novel, Ecotopia.
Forgoing natural values makes sustaining community tough. Where communities improve infrastructure – pave a bike path, clear an amphitheater, recycle gray water, bury their transmission lines – they attract people. Where people do community well — vote, volunteer, host block parties, join neighborhood watch, organize open-air markets — they draw people. People moving in pushes up the cost to live there. Rising values attract speculators who further inflate site values.
Inflated land values require heavier mortgages and are afforded by high income people paying high taxes. Expanding infrastructure to accommodate growth forces local government to raise taxes or borrow. Many people who made their community attractive can no longer afford to live there.
Were a community to collect its own values, it could not only afford its public services; most places would also end up with a surplus that they could disburse as a local dividend (a la Alaska’s oil dividend). The author of Steady-State Economics, Herman Daly, noted this possibility. Receiving this “rent share,” people could live where they love, love where they live.
Community, where we live, and economy, how we live, cannot be separated. As long as communities leak economic value, they cannot sustain themselves in a steady-state, like the skinny guy with a tapeworm wondering why he’s always hungry. By reclaiming land values, a community plugs its leaks so residents can sustain the lives of nature and neighborhood.
Question: Would a Citizens Dividend really result in a net benefit for people? I think each and every increase in income serves only to entice sellers and merchants to raise their prices, endlessly, around and around, like the magical brooms who panicked Mickey Mouse in the Disney cartoon, The Sorcerer’s Apprentice.
Jeff Smith, president of the Geonomy Society, answers:
Certainly, this does happen, even without animation. A merchant in an upscale neighborhood does charge more for the same pair of jeans compared to a cut-rate chain near a freeway exit (only the labels differ). It’s not only merchants who are aware of their clientele’s likely income. Landowners, too, are quick to figure out when they can charge more. Landlords whose tenants are the toney boutiques do raise the rent to claim a hefty slice from those higher prices charged to customers.
It doesn’t matter to owners where their clients get the money – whether from wages, profits, or a citizens dividend. As people receive more disposable income, they become more willing to trade convenience for price and spend less time shopping around for a bargain. Clients with money let merchants and landlords jack up their prices.
To preclude land price inflation, should we cut wages and cap profits? That’s neither feasible nor necessary. The upward pressure on price is kept in check by competition – the entry of new merchants and landlords in the market, eager to capture a portion of the higher disposable incomes.
While it’s not too hard for a merchant to open a new outlet, it is hard for a wannabe landlord to create a new location. So, while more income may raise the price of products that merchants sell in some places for some time, higher incomes inflate the cost of land at a much faster rate. Look at Alaska, which pays its residents a dividend from the oil royalty. When those annual checks show up in the mail, so does an Arctic blizzard of advertisements for all sorts of goodies and exotic junkets. Some merchants offer deals at even LOWER prices. But what’s happened to the price of residential land in Alaska since the oil share was instituted? It has shot up, faster than inflation.
What should we do with these land rents, with the money people spend on the nature they use? Four options present themselves. (1) Privatize rent, as now, letting owners of prime sites and resources borrow against it and really push up land values, over and over. (2) Let the government spend it, which also pushes up site values. And since government would have that steady income, it could borrow against it and keep over-spending and debauching currency. (3) Throw it all into the sea, depriving everyone of it, forcing government to “double tax”, once to collect the seaward rent and again to fund itself. Since taxes shrink their base, government would have less wherewithal for more obligations, driving them deeper into debt, worsening inflation. (4) Pay a Citizens Dividend!
As long as the citizens dividend is funded from sources other than land rents, it does inflate prices. Only when it comes from land rents does income outpace inflation and outgo. In a geonomy (an economy where rents are collected then disbursed), every rise in the value of land will be matched by an increase in one’s share of rent.
At first glance, it seems residents will do no better than just tread water. Yet most people only own residential land (if that much), they don’t own commercial or industrial or mineral or sylvan land. If they just own the land beneath their home, then a rise in residential site values will push up their land dues, but a rise in the value of all other sites will only fatten their land dividend. Meanwhile, competition will keep down the prices for people-made products.
Furthermore, having to pay land dues introduces competition among landlords (at long last). If a landlord lacks a tenant, yet still must pay land dues, that constant drain makes landlords tenant-friendly, eager to strike a deal, by lowering their price. Hence in a geonomy, with more sites available for homes and apartments, residential values might not rise at all but fall.
In the business district, on the other hand, the absence of taxation and the fast-paced volume of trade will increase site values. As land owners raise what they charge, so will the locally governing jurisdiction raise what it charges for recording and defending titles. This jump in the annual deed fee for commercial lot owners will serve only to fatten the residents’ dividends.
The combination of land dues and zero taxes also get at the root cause of true inflation, the deflating value of currency. Land dues make it impossible to use land as collateral (no bank wants to take on a liability, only an asset). Zero taxation makes it impossible for governments to qualify any longer as the borrower of first choice. Without land as collateral, consumers can not go so deeply into debt. Without the power to tax anything that moves, governments can not go deeply into debt. With debt shrunken to a serviceable amount, banks can not lend into existence a surfeit of fiat-backed notes. With just the right amount of sound dollars in circulation, inflation is halted.
Yet even with sound money, prices don’t stay fixed for long. The inexorable drive of techno-progress continues to get more from less. People-made products are actually cheaper now than they’ve ever been. We just can’t tell because the money we use is slightly debauched, relentlessly pushing prices upward. In a geonomy, inflation becomes a distant memory and real deflation – a constant fall in the cost of living – becomes the rule of the day.
Thus a rent-funded citizens dividend does increase disposable income without inflating prices. Some people might choose to live way out in the boonies where their land dues would come close to zero, yet still receive the same size land dividend as everyone else. They’d have almost enough to live on, not having to work much to meet all their needs. They could work less and live more. Thus the CD lets civilization get back to the workweek enjoyed by our primitive ancestors, and lets humanity advance to heights barely envisioned.
Geonomics is …
at work in Africa. Kenya Times (May 10): “Nearing Nairobi, what strikes a visitor first is the difference between the north side of the new Mombasa Road where Mlolongo lies (cited in these pages four years ago), and the south, which spots a few buildings and a vast expanse of undeveloped savannah. The difference is land speculation. Land is not free on either side of the road, but the system of tenure is leasehold in the North and freehold in the South. Result: the lease price paid to the Mavoko Municipality would be wasted by anyone not developing the land paid for; hence the booming construction. On the south side, the landowner sits on his daily appreciating but empty property, waiting to make a kill. Idle land gains value not because of what its owner does, but because of what the people on the other side of the road do. Henry George (1839-97) used to say, capitalist and worker do not divide the wealth; they divide what is left to them after landowner rakes in the rent, usurer the interest, politician the taxes. The perverse system of taxation that Kenya inherited from the British rewards the idle landowner’s sloth, while punishing the people’s industry.” (via Mark Monson)
The Wall St Jrnl of England
Great Britain’s Financial Times (June 8): “Increases in land values give not only a good indication of the benefits of infrastructure investments, but also provide an efficient and just way of financing their costs. It is efficient to tax these values because the tax would reduce the size of a windfall, while other taxes used to pay for infrastructure reduce effort, penalize the division of labor, or discourage capital accumulation. It is also just, because the chief beneficiaries [nearby landowners] would bear the cost.” (via Polly Cleveland)
FROM THIS PEN’S PERCH
A Tao attitude
Looking over shoulders Last issue, we reported on movement in Maryland, France, and in predicting the coming recession. Astute readers wrote back:
When local legislation has the formal support of the local delegation, the Maryland General Assembly applies “local courtesy”. The Ways and Means Committee designated Baltimore City Local Option bill for taxing site value “sponsors only”, which is usually reserved for bills that will sail thru. Then the Chair of Committee, Sheila Hixson, refused to give the bill “local courtesy” because “it might have statewide implications”. (via John Kromkowski who, with help from the Center for the Study of Economics, has drafted the last six LVT bills introduced in Maryland’s 2004, 2005 and 2006 sessions.
The French Sénate had passed a bill for sharing land value between landowners and their communes at the time when local government reclassifies a site as buildable. On their second reading, les Sénateurs canceled their proposal, which the French Députés had merely amended. Meanwhile, a comparable bill has been introduced in Flanders, the non-French part of Belgium. (via F. Coester, firstname.lastname@example.org, May 22)
Phil Anderson, Aussie business forecaster (May 11): “Re the bond yield inversion for forecasting: Others measure the two-year note against the ten-year bond, because both are traded in the market. But I use the federal funds rate against the ten-year bond. The funds rate has historically been the better fore-warner of recession. This pair of rates has not inverted yet in the US on a monthly measurement basis.”
UK’s Rich List of 2006
So land has lost its lucre, some say? Please note: Of the top 1000 people in Britain and Ireland, 211 of them derive their wealth from property. This figure, a record, is up from 198 a year ago, helped by booming industrial and commercial property prices. The richest native Brit, the Duke of Westminster, comes in at no. 3 with a £6.6 billion fortune. The most valuable sites are in London with planning permission, then other urban land, good farming, forestry, poor farming and, finally, desolate land, even with shooting and fishing rights. Agricultural land values ranged from up to £60 for “poor” agricultural land in the Scottish Highlands to up to £3,250 for “good” agricultural land in East Anglia. Some of the wealthy NOT in the property category do, of course, also own land. Some Oxfordshire examples include Richard Branson, whose fortune is estimated at over £3 billion. He has homes, estates and yacht worth about £25 million. Another example: David Allen, worth £85 million, largely from his stake in a Leisure company, is reported to have bought a 1,700 acre estate in Oxfordshire. Barrie Haigh made his fortune in pharmaceutical consultancy, but now owns an organic dairy estate on the Oxfordshire-Buckinghamshire border in the Chilterns. The combined wealth of the top 1000 has soared more than £50 billion – an increase of over 20% from last year, and is one of the highest increases since the Sunday Times started their list in 1989. Overall the rich have got much richer under Labour than ever they did percentage-wise under a Tory Government. (Sunday Times, April 23, via Dave Wetzel)
Chinese divorce for homes
In the Chinese village of Renhe – population 4,000 – 98% of married couples got divorced. The oldest were in their 90s and barely able to move. The youngest had just tied the knot. Some had babies. It seemed to make sense. For giving up their farms, the government offered married couples a small two-bedroom apartment but divorced people a one-bedroom apartment each. The villagers figured they could live in one apartment and sell or rent out the other. Learning about the mass divorces, authorities changed the compensation package. Farmers who divorced recently have to pay market price for a second apartment, which none could afford. Altho’ the marriage registrar reported that a few couples have remarried, most wait for new apartments, which could take years, if ever. (LA Times, May 8)
Fifty years ago, Asian “tigers” like South Korea and Taiwan were poor, very unequal, war-damaged agrarian economies. But unlike backward countries in Latin America, the “tigers” redistributed land to the peasants and invested massively in public health and education. Overnight they created a middle class and set off rapid economic growth. (Johnston, David Kay, NY Times, Apr 5, via Polly Cleveland) The kind of land reform Asia used was a levy on land. To avoid paying it, owners sold off their excess to peasants. As new owners, the farmers worked more efficiently, yielded surpluses, let sons go to work in cities, and had money for purchasing factory-produced goods. If now China uses the geonomic land levy, they could rule everyone; if China doesn’t, they’ll stay second tier.
“Saved” trees still logged
Almost all the world’s tropical forests designated for some sort of preservation over the past two decades remain effectively unprotected. As tropical nations lose their trees, they lose rainfall, since trees are a vital link in the precipitation cycle, lifting water from the ground to the air. Loggers and ranchers take out the trees that the law says are supposed to be left alone. (Washington Post, May 26) That’s why it’s hard for me to join my fellow environmentalists’ celebrations of new legislation. They’re not worth the paper they’re printed on, as long as basic economic injustices remain in place. One, rich people live far away from the consequences of their decisions on their absentee-owned land, and two, absentee owners displace poor people from savannah land. What corrects land hoarding is government collecting rent from owners. Then people with too much sell off their excess to people with too little, so the latter need not encroach on forests. And as owner occupants, they tend to do a better job as stewards.
Venezuela ups its royalties
In April, President Chávez’s populist government took control of 32 mostly marginal oil fields across Venezuela that had been managed by foreign concerns. Then on May 16, the National Assembly raised royalties on the four heavy crude oil projects of the Orinoco to 33.3%, from 16.6%, and is planning to increase taxes to 50%, from 34%. (NY Times, June 1, via Heather Remoff) Worldwide, oil royalties range from 10% to 90%, depending on the quality of the oil (light weight, few impurities), ease of extraction (wells on flat land vs. at sea or in the arctic), and on how much clout the oil companies have over the local government (pretty much in a US state). The best way to determine a fair percentage for the public is to have oil companies bid at auction. For that to work, it may be necessary to have more oil companies than those left after recent mergers. With fewer bidders, the government granting leases may have to determine an opening bid it won’t go below and shorten the length of the contract, and combine access fees with extraction fees, and impose random spot checks on extraction. Oil companies rightfully profit from exploring, extracting, refining, and transporting oil. The rest of the value of oil – and of nature in general – belongs to everyone equally
In Iraq, the US’s Provisional Authority subsidizes the price of gasoline, making it cheap there compared to high prices elsewhere. As a result, local officials, tribal chiefs, gangs, and rebels steal as much as 30% of imported gasoline and resell it abroad. Its estimated value ranges from $2.5 billion to $4 billion in 2005. Even at the low end, that means gas smuggling accounts for almost 10% of Iraq’s gross domestic product, $29.3 billion in 2005 – plenty enough money to finance terror, resistance, and civil war. The loss of gasoline cuts supply; people wait three days in line for legal gas – or wait a shorter while and pay more in the black market. (The New York Times, June 4, via Polly Cleveland) To make gas affordable, Iraq could pay its citizens an oil dividend, as Alaska does, Kuwait did, and US Iraq governor Paul Bremer endorsed. Until the oil royalties begin to flow in, the Iraqi government could advance their citizens a share and make up the debt when oil revenue at last gets back on track.
The US war over oil fields, creating more terror, making a few corporations richer still, has dropped America’s image in the polls, far below our soccer team. Even the mother country, merry old England, now likes us less than before. India’s positive image of America went from 71% to 56%; Russia’s from 52% to 43%; Spain’s was cut nearly in half in one year, going from 41% last year to 23% this. (The Oregonian, June 14) Besides wasting good will from the past, we incur heavier debt, lose thousands of soldiers, and kill tens of thousands of civilians. Oil companies and reconstruction companies get richer, but is anyone safer?
One tax down, more to go
Great Britain is finishing paying off its debt to the US, used for financing their war against the Nazis, waged 60 years ago. How many decades will it take US taxpayers to pay off their growing debt – now at $90 billion – for Bush invading Iraq? (via Phil Anderson). In the US, Treasury will no longer collect a 3% federal excise tax on long-distance calls. Congress imposed the tax in 1898 to pay for the Spanish-American War. Phone carriers must stop billing for the tax Aug. 1 and refund about $15 billion to taxpayers. Taxes account for about 1/5th of the average bill. (USA Today, May 26) Around tax day, war tax resisters made the news (USA Today, April 14); the majority pay taxes out of fear (MarketWatch, April 14). During the biggest economic boom in recent history – 1992 through 2000 – more than half of all corporations bravely paid no taxes. The rest of society needs to catch up. We could replace taxes with user fees, like London’s congestion charge, for use of sites, resources, EM spectrum, and the ecosystem; corporate owners would pay the lion’s share of such “land dues” – and no longer get corporate welfare. Instead, all members of society would share the recovered value of nature. This Citizens Dividend would grow smaller when our foreign policy grows more belligerent, diverting public revenue into war. If for no other reason than the bottom line, more people would vote for candidates who wage peace sensibly, giving those of strong moral conviction less cause to resist.
Gas companies rob us
Each year, do drilling companies and pipeline operators understate the amount and quality of the natural gas they pump on public land? A group of state governments, Indian tribes, and individual citizens claim the energy industry owes the federal government more than $30 billion in unpaid royalties for natural gas alone. When gas and oil companies drill wells on public or tribal land, they agree to pay royalties of about 16% of the value at the wellhead, before the fuel is shipped to market and refined. (Washington Post, May 7, via Hanno Beck) Meanwhile, for every day he worked, former Exxon Mobil Corp. Chairman Lee R. Raymond got $144,573 – daily (LA Times, April 22).
For years, the THUMS Consortium – Texaco, Humble, Union, Mobil, and Shell – extracted oil from Long Beach Harbor in California. They gave 96.25% of the profit (presumably the excess of income over expenses) to the City of Long Beach. The city held the revenue as long as possible before giving the State of California its share. THUMS got along on 3.75% of the profit above the expense of extraction. This may not factor in cost of exploration, which along the southern coast of California, where oil seeps from the ground, may have been low. Apparently, another concern now has the contact. (via Harry Pollard, May 5)
People need to feel as possessive about the value of nature and natural resources as they do about their own homes. If somebody burgles you, you fight back. Enough people fight back, and theft no longer seems excusable.
We pay them to pollute us
Each summer, a lifeless expanse of water about the size of Connecticut forms off the coast of Louisiana. The dead zone has averaged more than 6,000 square miles over the past five years. That’s 20% larger than the 5,000-square-mile average since 1985. When the zone sharply expanded between 1985 and 1998, shrimp production declined 23%, or almost 20 million pounds annually. In the same way they accelerate the growth of corn and other crops, fertilizers washed into the sea spark massive algal blooms. As the algae die, that sucks almost all the oxygen from the water, forcing fish to relocate or perish. Almost 80% of the nitrogen-based fertilizers largely responsible for the low-oxygen zone have been traced to a relatively small number of agricultural counties in the Midwest, just 15% of the Mississippi basin. There agribusiness receives huge handouts – $30 billion from 1997 to 2002 – from the federal government. As more nations adopt Western agricultural practices, they too are having similar hypoxia problems. (New Orlean’s Times-Picayune, April 17, via Hanno Beck) Without subsidies to mechani-chemical agri-business, then competing organic growers could effectively take over a larger market share.
S. 2590, the Federal Funding Accountability and Transparency Act, sponsored by Sens. Tom Coburn (R-OK), John McCain (R-AZ), Barack Obama (D-IL), and Tom Carper (D-DE), would direct the Office of Management and Budget to create a publicly-available website that would list every entity receiving federal grants or contracts and the totals awarded for the last ten fiscal years (via The Progress Report).
Gangs expand inland
A resurgence in gang activity increased the nation’s violent-crime rate in 2005 for the first time in five years. Of the four crime categories that make up the FBI’s violent-crime index — murder, rape, robbery, and aggravated assault — only rape declined in the national figures. The jump in homicides — nearly 5% nationwide — was the largest annual increase in the past 15 years. Some of the biggest increases were in Milwaukee, Oklahoma City, Omaha, St. Louis and other Midwestern cities. Apparently, gangs from the East and West coasts are branching out to smaller cities, where there is still money to be made and turf to be ruled. (USA Today, June 13) Historically, David H. Fischer, in his quite readable and informative Great Wave, correlated not just crime but also bastardy and other social ills not with unemployment but with price inflation. Indeed, an uptick in prices did again precede this jump in violent crime. Whether there is cause or just correlation, any economic condition that worsens crime can be resolved. A less known correlation is that more widespread tenure on land and in homes creates prosperity which fosters more harmony among neighbors. When Pittsburgh taxed land more than buildings, it damped down speculation and kept neighborhoods intact. Its crime rate was like that of a small town. Geonomic tax shifting is a reform that any crime-weary city could adopt.
Overworked sue bosses
Video game software engineers often work 85 hours a week. When a lonely spouse complained in a blog back in 2004, it sparked six lawsuits for unpaid over time. Now, more than a year later, game developers have won settlements in three class-action lawsuits against industry giants. The spouse, Nicole Wong, is becoming a voice against America’s culture of overwork. (San Jose Mercury New, April 25) In 2005, a California jury awarded more than $172 million to more than 100,000 current and former Wal-Mart workers who had been denied lunch breaks and were asked to clock back in before their breaks were over. Fifty-five percent of workers take half an hour lunch break or less. More employees today are forgoing the traditional long lunch and instead using the time to keep working or get other errands done. (USA Today, June 12) One solution to the time famine is an income apart from one’s work. The first US Basic Income Guarantee Bill, HR 5257, was introduced in the House of Representatives by San Diego’ Congressman and former Sierra Clubber Bob Filner. The bill would transform the standard income tax deduction into a standard tax credit of $2000 per adult and $1000 per child. It would give a refundable tax credit to everyone who filed an income tax return, even if the person had no income. (US BIG Newsletter, June) While the credit would not come directly from rent (that should happen later), it would cut the income tax burden, and cutting taxes is the other half of geonomics.
Land price steps back
Over a 12-month period, sales of existing homes were down 5.7% in March and April. Sales of newly built homes were also down 5.7%. In March, both average prices and median prices fell year-over-year, the first time prices had fallen year-over-year since 2003 December. In April, new homes were just 0.9% higher than a year before while existing homes rose 4.2% to $223,000, the lowest price gain since September 2001. (MarketWatch, May 25) The home-price index was up 12.5% in the past year but only 2% from 2005 fourth quarter to 2006 first quarter. It was the slowest quarterly gain since 2004 Q1. Among 275 metro areas, 53 saw prices decline from fourth quarter to first quarter, including some previous hot markets in California: San Jose, Santa Barbara, Santa Rosa, Sacramento and Salinas. For some cities, including Boston and Cincinnati, it was the first quarter one decline in at least 15 years. (MarketWatch, June 1)
As recently as 2004, only three markets of single-family homes, representing 1% of home value, were considered grossly overpriced. By the end of 2005, the number had risen to 64 cities. Three months later – 2006 Q1 – it had risen 11% to 71 cities extremely overvalued and at risk of price correction. Overpriced markets represented 39% of all single-family housing value in the first quarter of 2006. Overall, 17 of the 20 most overvalued markets are in California and Florida. Home price appreciation was fastest (10.1%) in the 50 most overvalued markets during the quarter and slowest (2.7%) in the 50 most undervalued. The fluff is calculated by comparing prices to income, employment, population density, and a city’s premiums and discounts over time. The analysis covers 317 metro areas accounting for 84% of U.S. single-home value, up from 299 studied areas last year. (USA Today, June 13)
By March, the supply of homes for sale had climbed 46%. In April, the backlog reached a six-month supply, its highest level since 1998. Builders are starting new homes at a pace that has plunged at an annualized rate of 56% in the past three months. That’s similar to what occurred early in 1991, when the economy was in recession. Since 1959, of 10 slowdowns in home building, seven slowed down the rest of the economy, often after a 20-month lag. (The Christian Science Monitor, May 26)
Metals take a step back
Gold for August delivery finished down $15.50 at $633.50 an ounce on the New York Mercantile Exchange – its weakest closing level since April 24. It fell as low as $625.70 early in the day, a level not seen since April 20. The contract closed out the month with a loss of almost $12, its first monthly loss since February when the front-month contract lost about 2% of its value. Gold led the way as other metals – silver, platinum, and copper – also lost value. Most forecasters figured commodities were taking a breather and would regain their momentum in coming weeks. (MarketWatch, June 1)
New road to serfdom?
Mortgage foreclosures surged 72% in the first quarter of this year, as compared to a year ago. Go to a bookstore right now and buy a copy of Harper’s (Birch Blog, May 5). May’s issue ran Michael Hudson’s article, “The New Road To Serfdom, an illustrated guide to the coming real estate collapse.” Thru-out history, debtors were medieval peons, or Indians bonded to Spanish plantations, or the sharecropping children of slaves in the post-bellum South. Never before have so many Americans gone so deeply into debt. In 1979, the bottom 80% of Americans got almost 25% of the economic rent, the richest 1% got less than 40%; in 2003, the bottom 80% got around 15%, the richest 1% got around 58%. In 1955, mortgage debt was 30% as much as the GDP; in 2005, it was 11.8 trillion dollars, over 90% of what the GDP was last year. The median price of a home almost doubled from 1995 to 2005 from $109,000 to $206,000. Real Estate prices have far outstretched increases in national income. Mortgage loans account for 90% of the net growth in debt since 2000, more than half the bank loans since 2003, more than $300 billion in 2005 alone. Half the people last year who bought homes put no money down, many took out interest-only loans, a few took on negative amortized loans which dispensed entirely with payment on the principal and required only partial monthly payments on the interest, the extra interest is added to the total debt which can grow indefinitely. Meanwhile the Federal Reserve raises interest rates; the borrowers who took out adjustable mortgages will have to pay more for homes worth less.
Consumer prices including food and energy rose 3.1% over the past twelve months, down from a 3.3% pace in March. Real disposable incomes (inflation-adjusted and after-tax) fell 0.1%. Real per-capita incomes fell 0.2%, the third decline this year. With spending rising faster than incomes, the personal-savings rate fell to negative 1.6% in April from negative 1.4% in March. The savings rate has been negative for 11 consecutive months. (CBS MarketWatch, May 26)
In 1979, homeowners’ equity was 67.3% of the price of their property; in 2004 it was 56.7%. In 1979, the ratio of household debt to disposable income was 71%; in 2005, third quarter, it was 126%. From 1989 to 2001, mortgages for the bottom quintile rose 191%; for the top 10%, only 40%. As a ratio of debt to income, the financial obligation of renters is twice that of homeowners. Renters owe most for credit cards (40% of their debt), then vehicles (35%), then student loans (20%). As of 2005 August, the credit card debt of Americans stood at nearly $800 billion (mortgage debt is about three to four times that). In 1990, households saved 10% of income; in 2005, household spending exceeded income for the first time since the Great Depression. (Woodstock Institute’s Reinvestment Alert, May, via Phil Anderson) Thanks to more credit card debt and borrowing against their homes, the 25% of Americans at the bottom of the wealth scale had negative net worth in 2004. On average, these families owed $1,400 more than their possessions were worth.
Debt can’t grow and income shrink forever. As more people have less money to pay their debts, foreclosures and bankruptcies pile up. At some point – probably in 2008 – recession starts.
FROM THE OP-ED PAGES
Good press in the East
David Warsh, formerly of the Boston Globe for 18 years, Editor of economicprincipals.com, devoted a column to the Dollar & Sense article on rebuilding new Orleans by Mason Gaffney (April 23): “How exactly did single tax work its magic in San Francisco? In modern-day language, it solved a coordination problem. It forced people to get the most out of the land by building on it. (What is a skyscraper, goes an old saw, but a machine for getting cash out of the ground?)”
In Hartford, site of a geoist conference not many years back, The Courant, the main daily, also ran a column April 30 that referred to the article in Dollars & Sense: “According to Gaffney, [taxing land] worked in San Francisco. The city’s credit was quickly restored, and it began borrowing to rebuild infrastructure. The population grew by more than 20% in each of the next three decades.” (via Josh Vincent)
The Star-Ledger, the main newspaper in Newark, New Jersey (across the river from New York City), ran an article May 4 on a fine idea: “the best idea is one that dates back more than a century: a two-tiered system that would impose higher taxes on land than buildings.” (via Josh Vincent)
The Times of Trenton (May 8): “Split the school property-tax rate into a higher land tax and a lower tax on buildings. This scenario – based on the Henry George single-tax dating to the 19th century – proposes taxing land and improvements at different rates, with land taxed more heavily.” (via Mark Monson)
For a sort of land-value tax
Out West, the Portland Metro Fair Growth and Farmland Project Committee recommended that land speculators whose land doubles in value when it becomes available for development should pay a “windfall profits tax”. Metro Councilor Robert Liberty initiated the project along with Councilor Carl Hosticka. The committee included mayors, Realtors, tax officials, and homebuilders. (The Oregonian, April)
Mauritius Times (online issue 215, June): “Capture the proceeds from windfall taxes on land sales in a permanent ‘fund for future generations’. The revenues should not be coursed through the annual national budget. That may serve the interests of the government in power for a short period before the proceeds are dissipated. Instead the funds obtained from taxes on land sales should be sequestered and invested. Government should use only the yield from that corpus for annual capital investments in social housing and other social infrastructure (i.e. schools, universities, hospitals, public leisure facilities, retirement homes and care homes for the elderly, etc.)”
FROM THE ARCHIVES
About.com on Monopoly
A visit to about.com tells the true story about the board game Monopoly. Over a century ago, Lizzie Magie, a Quaker, received the first patent for the board game, which she called “The Landlord’s Game”. She designed the game to teach the insights of Henry George. George noted the rent for land profited a few individuals (landlords) rather than the majority of the people (tenants). To discourage speculation and encourage equal opportunity, he proposed a single tax on land value. The Landlord’s Game and Monopoly are very similar, except all the properties in Magie’s game are rented not acquired as in Monopoly and instead of names like “Park Place” and “Marvin Gardens” one finds “Poverty Place”, “Easy Street”, and “Lord Blueblood’s Estate”. The game spread among Quakers and proponents of the single tax, usually copied instead of purchased, with each new maker adding their favorite city street names as they drew or painted their boards (usually on table cloth). Each new maker did often alter or write new rules. As the game spread from community to community, the name changed from “The Landlord’s Game” to “Auction Monopoly” and then just “Monopoly”. One enthusiast taught the game to Charles Darrow. He sold his version for millions to Parker Brothers, who paid Magie only $500 for her patent. The rest, as they say, is history, altho’ a false story – a classic example of how winners, in this case the wealthy corporation Parkers Brothers, write history.
On tax-funded land abuse
The federal government has long shaped local land use decisions, via tax breaks and subsidies. Cities in the Wilderness: A New Vision of Land Use in America by Bruce Babbitt and Wildfire and Americans: How to Save Lives, Property and Your Tax Dollars by Roger Kennedy were both by Clinton administrators: Babbitt, Interior Secretary, and Kennedy, head of the Park Service. Kennedy argues the biggest incentive was the interstate highway system, officially built for national defense but enhanced commuting to the exurbs. Another factor was the feds building dams and a power distribution grid. Mortgage deductions and insurance programs also loosed people into unsettled areas. Babbitt cites farm subsidies and rules that produced “agricultural sprawl” and severely damaged the Everglades ecosystem and taxpayer dollars supporting overuse and pollution of waterways and watersheds that ravaged streams and grasses. He says government subsidizes efforts to extract resources from the land, particularly oil and gas. Most damage is done not by the mining or drilling itself, but by the construction of roads the enterprises need. Where the roads go, development often follows. (The New York Times, May 30, via Heather Remoff) When will land abuse end? When a critical mass realizes that the value of land is not for a lucky few to hoard but for all of us to share. Instead of arguing that your subsidies stink, mine smell sweet, we could not subsidize anything, not even clinics and schools, and instead pay everyone a hefty CD. It wouldn’t be enough for corporadores to fund factory farming and strip mining, but it would empower everyone else to find security.
On Henry George
John Laurent, editor, Henry George’s Legacy in Economic Thought, published by Edward Elgar, 2005, reviewed for EH.NET by Donald E. Frey, Department of Economics, Wake Forest University. This book demonstrates that George was significant and that his ideas have relevance to contemporary issues. The introductory chapter outlines George’s influence in Australia and New Zealand. The rest of the fist half covers other historical issues, such as the debate with Thomas Huxley. The second portion of the book shows George’s ideas emerging in modern debates. Laurence Moss argues that the increment in land values caused by social progress might fund public goods. John Pullen argues that George’s rhetoric on private property was a mistake that alienated potential support; Pullen suggests “conditional” ownership instead. Terry Dwyer argues that efficiency might be restored in industry with monopolies – as well as a measure of equity – by taxing enhanced land values created by an infrastructure monopoly. Frank Stilwell and Kirrily Jordan argue that a land tax is compatible with environmentalism. Phillip Day notes, in our era of globalization and mobile tax bases, that taxes on land cannot be shifted. (via Polly Cleveland, May 15)
Murdoch on monopoly
Media mogul Rupert Murdoch said, off the cuff, whilst delivering the 1994 John Bonython lecture: “Because capitalists are always trying to stab each other in the back, free markets do not lead to monopolies. Monopolies, he said, could only exist when governments supported them.” (via Phil Anderson, forecaster of business cycles, May 23) See the difference between capitalism and a free market? Capitalism is the partnership of the elite and the state. Not too many centuries ago, rich owners of nature and the state – the nobility – were one same on the surface, too, not just deep down as they are today – the “oiligarchy”. A free market, on the other hand, has the government not granting privileges to anyone but defending the rights of everyone. Punishing polluters. Punishing robbers, whether white or blue collar. And, most basically, recovering and disbursing society’s surplus – the money we spend on the nature we use – to all members of society equitably. When society allows only a few to corral the values of nature – oil, most conspicuously today – that’s when the trouble starts. Such hoarding is the origin of class, privilege, obscene wealth and undue poverty. As Thoreau said, for every 1000 hacking at the branches of evil, only one hacks at the root. The flow of natural values is the root. Sharing those values is the primary correction for a world working right for everyone.
Geo-green = geonomics?
Thomas Friedman in his column in the New York Times (2005 February 13) touted his “geo-green” strategy that combines environmentalism and geopolitics. That is, reduce oil consumption and thereby reduce damage to the global climate and funds flowing to Muslim terrorists. To spur Americans to consume less oil, he’d tax gasoline. Even if that could do some good, it would not do enough. It’s at least as necessary to end subsidies to cars – road costs covered from the general fund – to oil companies, such as paying for a “strategic reserve”, and to developers who build sprawl, leaving the costs of new schools to old residents. With ending subsidies, we must also end taxes on earned income. Taxes on wages make it more expensive to hire people to do things like organic gardening which consumes far less fuel than agribusiness. Taxes on profits make it more risky to invest in energy alternatives. Besides ending taxes and subsidies, we also need to recover the value of natural resources in the ground, and use the funds to pay a Citizens Dividend, as Alaska does for its residents. Nobody put minerals in the ground and everybody generates their value. Once we recover and share it, we whittle the oil companies down to a more human-scale size, and we empower ordinary people to adopt lifestyles less dependent on commuting and rush hour – a huge waste of fuel. Total reform of the flow of public revenue may not yet be on Friedman’s radar screen, but like Lincoln said, “nothing’s fixed until it’s fixed right.” And nothing less than total geonomics will cure us of our addiction to oil.
CBS says CPI distorted
With home prices remaining high and mortgage rates rising, more people get priced out of the real estate market and seek rentals. Their fresh demand pushes up rents. Higher housing rents, not higher housing prices, push up the government’s inflation rate. Their economists measure the housing costs of both renters and homeowners by looking at rents, not at prices, as if owners rented their homes to themselves. Homes are not only shelter – a cost of living – but also investments that, when sold later, may cancel out the purchase cost, even return a profit. Yet some homeowners lose money, and some don’t sell their homes. And even if housing did turn out to be a moneymaker in every case, mortgages are still a cost of living. Leaving them out means that when home prices soar, the official consumer price index (CPI) doesn’t. The current rate, reflecting higher rents, reveals a truer picture of the cost of living. The housing sector makes up 40% of the government’s CPI. (CBS MarketWatch, May 17)
Inflation really not slow
According to Ricardo Reis of Princeton, the government’s measurement of inflation is flawed. To calculate the Consumer Price Index, their number crunchers use the market basket. It does not allow for substitution: if the price of one good rises, consumers switch to another; and if they expect a price to rise or fall, they will accelerate or postpone purchases. Reis constructs a dynamic price index or DPI. Its most influential factors are the prices of housing (land, actually) and bonds. While the DPI roughly tracked the CPI over the last thirty years, in recent years it has sharply diverged. In the four years to 2004, while the official CPI rose only 2.3%, the DPI rose an annual average of 7.4%. See princeton.edu/~rreis/papers.html#DPI. Note that over a 10-year period, an annual percentage increase of 2.3% comes to about 26%, an annual increase of 7.4% comes to about 104%. (via Polly Cleveland, April 30)
Life after losing land profits
Chuck Metcalf, ex-architect, jazz bassist, and systems theorist in the Bay Area (Apr 22): “If all increase in land value were to be recovered by the community—would that not tend to make land ownership more of a burden than a boon?”
Editor: No longer retaining all of a site’s rent would make land speculation a burden but not land use. By using their location, owners could still profit from the building or farm or whatever. Owners would either use their excess or sell off to other, more productive, users.
Bill Grennon, New Hampshire activist (Jun 8): “If all economic rent is recovered by community and thus there is no longer a sales price to purchase land – how is an assessor to know what the economic rent is?”
Editor: Since land price is capitalized rent, buyers already know it. As Dan Sullivan notes, most property is improved, and has a selling price. A price that exceeds the value of the improvements suggests that the site is under-assessed; a price that falls short of that value suggests the site is over-assessed. Next year’s reassessments could make the corrections. Improved properties are also sublet, which supplies rental data directly. For vacant sites, communities could auction them off. How do wanna-be owners know how much to bid? Depends on where the land is and how it’s used (among other factors). For residential sites, ambient income is a good clue. For commercial sites, foot traffic.
Like land, like knowledge
René Heeskens of Holland’s GBI Foundation (Jun 2): “I just read your paper, ‘Fund BI not from income but from outgo’, on the USBIG website. Though the argument was not new to me, I especially liked your clear analysis of all the economic benefits of making society’s members the rightful recipients of our spending on nature, instead of individual owners who have appropriated nature by excluding others. The ethical argument that nature belongs equally to us all can be broadened to other factors, such as knowledge. The increase in productivity is nowadays the most important factor in producing economic value.”
Editor: While it seems true, it’s not. Just as the 1849 California Gold Rush made more millionaires out of land speculators than among gold miners, so today in Silicon Valley, land prices exceed hi-tech stock prices. Location always soaks up values made originally by other factors. Yet fields of knowledge are like fields in nature; if you want to exclude others, then pay the going rate for patents, copyrights, titles, or deeds. “Renting” their patents from the government, Microsoft would not get 3k patents every year just to exclude others; others could charge Microsoft et al for their ideas, and Gates would not be a billionaire but a millionaire (some concentration has to happen in mass markets).
Gary Denton to the Democratic Freedom Caucus (DFC) list: “The blog Kos, a viral effort for younger folks to mobilize the D Party, gets millions of hits. Kos (short for Markos, first name of the founder) has come out as a Libertarian Democrat (6/7). Hopefully he’ll discover and incorporate the principles of the DFC, which touts geonomic reform of taxes and subsidies. Kos regulars are having their first annual convention; among the scheduled speakers are ex-Virginia Gov. Mark Warner, House Minority Leader Nancy Pelosi, and Senate Minority Leader Harry Reid. Iowa Gov. Tom Vilsack and retired Gen. Wesley Clark will also be in attendance. It’s getting plenty of media coverage.”
Michael Strong, Exec. Dir. of FLOW (April 30):” I know enough about your thought to know that I need to know more. I like moving from ‘educational vouchers’ to a Citizens Dividend. I have often struggled with the government control that would invariably be associated with government-given vouchers; it would be better just to give each family $10K or so per kid each year to do as they pleased, especially in secondary school. With geonomics, of course, it could be higher, as long as we had a corresponding decrease in other taxation. I’d like to build up enough momentum, publicity, and funding so that we can advocate these ideas with ever more credibility and effectiveness.”
In the media, on a podium
Had letters in Portland’s Oregonian, the main daily in the state, on May 28, a Sunday (the most read day of the week) on immigration, noting it’d be slowed by prosperity in the South, and that geonomics lets people prosper, so we should model this rational revenue reform in the North; on Blue Oregon, the blog of progressives, June 20, garnering 18 hits in one day; and in the June Mensa Bulletin, the magazine of American Mensa. Cited in Simple Solutions, edited by John Watkins (June 8). The New America Foundation, a DC-based foundation that often has op-eds in The Wall Street Journal and other papers, has a Senior Fellow, Joel Kotkin (May 18): “Would it be OK with you to post your comments on my website?” Prof. Casey Condon, Jacksonville FL (May 21): “Interesting info, some of which I incorporate into lectures.” The FLOW Project, founded by Whole Foods Market, promotes freedom and the entrepreneurial spirit as ways to move toward a better society. Executive Director Michael Strong welcomes support “for a green tax shift using geonomic principles and for innovative property rights solutions and Ostrom solutions to commons problems”. (via Mike O’Mara, May 31) In Portland on Earth Day, we had a table, thanks to the generosity of Brian Beinlich, Mark Nedleman, and Kathleen Walsh. We unloaded dozens of this newsletter, had enjoyable conversations, listened to some original and uplifting music, and hopefully helped generate some buzz for sharing the worth of Mother Earth everywhere.
Newcomers, old stayers
The Robert Schalkenbach Foundation contracted for a paper on Oregon’s land compensation law, Measure 37, and another on the supposed correlation between the Fed’s lending rate and housing costs. Our spring Geonomist elicited enough renewals and newals to cover the costs of copying and postage: from sustainers Bill Grennon (New England activist) and Jeff Strang (Oregon building inspector, humanist, and Green Party candidate); supporters Robert Bernstein (California leisure expander), Greg Young (Missouri caregiver); and subscribers Joan Sage (ret. Philadelphian) and Jeffrey Weih (Oregon medicine man), 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.
WHERE FROM HERE?
Along Lake Michigan
The Council of Georgists Organizations holds its annual conference in Chicago, July 19-23. The deadline for the early price is June 15. For more information or to register, please visit: www.progress.org/cgo or www.georgists.org. See you in Chi-town! Afterwards, a few of us continue the proselytizing a couple hours to the north in Milwaukee. All are welcome to those meetings and outings as well. Get in touch for more details.
What you can do 1
How polluted is the air you, your family, and neighbors breathe? To find out, enter your zip code at the website of the American Lung Association. Over 150 million Americans live in counties where they are exposed to unhealthful levels of air pollution. Polluted air hurts us all, but most especially children, the elderly, and those living with chronic lung diseases like asthma, emphysema, or diabetes and cardiovascular disease.
Editor: What can you do? Short-term, insist that government enforce at least the weak laws we have now. Long-term, end subsidies to polluters and instead charge them for the damage they do. Then clean alternatives will claim a larger market share.
What you can do, too
Meta Heller, retired but active in Washington’s capital Olympia (April 29): “I shall take your Geonomist to our Current Affairs Discussions which I’ll be leading.”
David Bean, Oregon carpenter (May 15): “Can you give a talk on the housing bubble to the Economic Justice Action Group of the Unitarians for about an hour total which is to leave room for questions?”
Elvin Todd Allen, Oregon activist and travel agent (Apr 13): “I plan on questioning our speaker tonight. I would like to introduce Geonomics there. And to all the organizations I belong to (inc. the NAACP). Please give me a few attention-getters and a basic outline.”
Luke Scott Mead, Oregon college student (May 31): “Let’s meet up. Perhaps I could send you some gas money. How about getting a measure on the ballot to tax land values statewide? That would be a great. Especially in light of Portland’s scandalous tax breaks for urban renewal. That and resource taxes might replace most federal and state taxes that we now pay.”
What you can do $
Chuck Metcalf, ex-architect, jazz bassist, and systems theorist in the Bay Area (April 22): “Thanks for the newsletter and personal note. Great distilled information, as usual. I’m sending you a couple of my CDs.”
Editor: Thanks for the tunes. Other readers, help highlight for everyone a path to a better world. Send what you can; we’ll do even more to deserve it. Happy New Summer!
Dear Geonomy Society (an educational IRS 501(c)(3));
Here’s my tax-deductible yearly dues:
While the media glorified housing prices when they were swelling, creating the illusion of wealth for many and unearned fortunes for few, now they sing a different tune. A headline predicts the bubble to pop. The UCLA researchers forecast 800,000 will lose jobs in construction and financing. Housing prices will next year start to decline nationwide and keep doing so for several years. The housing sector slowing down started eight of the last 10 recessions. This cycle, the report expected slower economic growth but no recession. (The Oregonian, Dec 8; for more on overvalued housing markets, see page 6.) We’ve been saying the decline won’t start until the year after next, that it’ll be steep (25%-50% post-inflation), and will accompany a recession. The bigger they are, the harder they fall, and this bubble has been titanic, so the correction should be deep. The inflation-eaten wages, the unemployment, the bankruptcies at the bottom coupled with the spectacular gains at the top, widen the gaps in income and wealth – the set up before the Great Depression of the ‘30s. Before it could get that bad, we do have a few years to set things right, to de-tax earnings, halt wasteful subsidies, and share the worth of Mother Earth.
Crime and war less popular
Since the disintegration of the Soviet Union, the ex-USSR and the US have quit staging wars via client states. Hence armed conflict on this planet has subsided by 40%; genocide and abuses of human rights have dropped even further. During the same time, terrorism has increased, yet it kills far fewer people than open warfare. Currently, 60 wars rage, waged by poorly trained and equipped small bands using light weapons who kill many civilians, but less than before. Wars killed over 100,000 in 1992 then 20,000 in 2002, (Cont’d p. 2)
Geonomics is …
an answer for Jonathan of the Green Party (Nov 7): “What does ‘share our surplus’ mean?”
Our surplus is the values that society generates synergistically. It’s the money we spend on the nature we use: on land sites, natural resources, EM spectrum, ecosystem services (assimilating pollutants). It’s also the money we pay to holders of government-granted privileges like corporate charters. We could share it by paying for the nature we use and privileges we hold to the public treasury then getting back a fair share of the recovered revenue. Used to be, owners did owe rent (“own” and “owe” used to be one word). And presently, some lucky residents do get back periodic dividends: Alaska’s oil dividend and Aspen Colorado’s housing assistance. Doing that, instead of subsidizing bads while taxing goods, is the essence of geonomics.
Jonathan: “Is local currency what you mean?”
Editor: It’s not. Community currency is a good reform, but every good reform pushes up site values. That makes land an even more tempting object of speculation. Now, any good will eventually do bad by widening the income gap – until you share land values.
FROM THIS PEN’S PERCH
Swiss cheese for brains
This winter issue gets the newsletter back on schedule (nearly). It’s coming out just a month after the tardy fall issue. November wasn’t too chilly here in Oregon, but who has time to go outside and play? Americans spend 90% of their time indoors, working. Me too, researching this, writing screenplays, traveling. Anyone want to pitch in? I could really use an editor:
Karry Skanda, phd economist (Nov 23): “Thanks for promoting me to ‘actor/model’ in your last newsletter. I have never acted in my life nor have I modeled. ‘Karry Skanda’ is my pen name as a writer/producer for TV documentaries. Actors & models mainly work with their bodies and other people’s brains and emotions. Writers/producers have to use their own brains.”
Editor: Of which you’ve plenty, much more than me, er, I. Sorry about that. Maybe some day we could co-write/produce my trilogy of Georgist movies?
Readers Wendy Rockwell (Nov 6) and Mario Cordero (Nov 17): “Your article, ‘Nicaragua to tax land’, had the politician introducing land-value taxation, José Francisco Salas Ramos, as a Deputado of the Assembly in Nicaragua but it’s the one in Costa Rica.”
To err is human. But to put it in a headline, that’s ballsy. The local paper claimed that a plan for a new building downtown shows the economy is fixed. Yet when the skyline sports the most construction cranes is when the latecomers rush to get in on the feeding frenzy before the boom fizzles. Another headline announced plans for a new tallest building in Portland. Ironically, record-setting buildings coincide with the end of the cycle (the Erection Index). As people arrive in Portland from more overvalued regions, they’ll delay the inevitable but not derail it. Our new skyscraper may bankrupt its original investors but afford others a great view of the Willamette River and Mount Hood.
Crime and war (cont’d)
the lowest amount since 1927. The US invasion of Iraq killed 8,300 people. In 2003, Africa had almost 11,000 battle deaths, the Middle East had more than 9,000, Asia had almost 6,000, and Europe and the Americas fewer than 1000. Attempted military coups have been in decline for 40 years. (The Oregonian, Oct 18) Meanwhile, the US spends more on war – multi-billions – than the rest of the civilized world put together.
Yet violence in America subsided. The murder rate fell to its lowest level in 40 years, to 5.5 homicides for every 100,000 people, dropping for the first time in four years. Violent crime in general fell to a 30 year low, 465.5 crimes per 100,000 people. The rates for property crime were also down, to 3,517.1 crimes per 100,000 people. These figures averaged widely disparate rates from around the country. What were the factors lowering crime in some places, the report did not guess. (The Oregonian, Oct 18)
With both crime and war reduced, Merry Solstice! So those rates don’t swing back up yet get lower than ever, let’s establish economic justice, fast. Axe taxes and charge user-fees for using Earth, and axe subsidies and pay ourselves dividends from all the recovered values of locations and privileges. To paraphrase Gandhi: There is no way to justice. Justice is the way.
Titles lift Latin families
In Latin America, about one-quarter of urban residents are either squatters or are living in unauthorized housing. In Buenos Aires Argentina, squatters who acquired title to their plots fixed up their homes, had smaller families (five members), sent their kids to school, and only 8% of their daughters got pregnant as teens, compared to squatters who failed to get titles. Those occupants didn’t improve their dwellings, had bigger families (six members), didn’t continue as far into school, and 20% of their daughters got pregnant as teens, eventho’ the income of both families was the same. (The Wall St Journal, Nov 9) Besides dishing out titles, another way to turn occupants into owners is to tax land. That spurs big owners to sell off their excess to squatters at prices that the new owners can afford. It’s a strategy that’s worked every time it’s been tried.
Taxes matter to filmmakers
Hollywood and the British film industry lobbied hard for major tax credits for films shot in the UK. The government offered credits of 6% for bigger-budget films and 17% for smaller pics. The movie producers wanted more. In a happy ending, the British government gave Hollywood and the UK film industry an early Christmas present: 16% tax credits for films with budgets above £20 million ($34.8 million) and 20% for films below that figure. In his annual pre-budget speech Chancellor Gordon Brown, the equivalent to the US treasury secretary, announced the new plan replaces the old scheme and takes effect April 1. At last, the UK Film Council claims, Britain can get back into the business of the big international productions. (Variety, Dec 5 via Skip Press) See, taxes do shape behavior.
Chinese want geo-justice
The former British colony and flagship geonomic, city Hong Kong, marched 250,000 strong to protest the slow pace of winning back their democracy that Beijing had rescinded after reunification. (LA Times, Dec 5)
In China, where traditional parents abort female fetuses to give themselves another chance for a boy, about 117 boys are born for every 100 girls. That means millions of young Chinese men will never marry. Known as guang guan or “bare branches”, many have drifted into the thug-for-hire trade. Corrupt officials and land speculators pay the men about $12 a day, plus bonuses for extra damage. By contrast, factory workers are fortunate to earn $5 a day. (USA Today, Nov 22) If only the Hong Kong model – public recovery of site values coupled with low taxes – could have instilled in the Chinese psyche the understanding that the value of land should not be an object of speculation but a bounty for all members of society to share. It’s a hard lesson for any society to grasp, but someone must embrace it first if civilization is to continue.
Car fumes kill Iranis
Over 1600 people were taken to hospitals in Tehran, ill from air pollution. The extent of deaths and casualties from smog were not less than those in the plane crash in the Irani capital in December which killed more than 100 people. While residents complained of fatigue and headaches, hospitals reported more cases of breathing problems and heart attacks. There was no wind or rain and the dirty air is trapped by the mountains surrounding the city. The sources of the poison are the capital’s three million cars, many of which lack exhaust filters. Trying to reduce traffic, authorities closed public offices and schools and are letting cars into the city centre on alternate days, depending on whether their number plates start with odd or even numbers. In Teheran, up to 5000 people die every year from air pollution. (BBC News, Dec 10) Besides polluting, cars also deplete resources and require huge swaths of land. For each of these three uses, geonomics would make cars pay their way. Charge dues for the atmosphere, the buried metals and oil, and the surface. Then manufacturers would switch to cleaner engines like hybrids, people getting around, especially in cities, would switch from driving to riding, and cities themselves would devote less space to streets and more to sidewalks and bike paths. Then a place so rich in oil would not be so buried in smog.
Boston poor get Latin oil
They’re not citizens, but they are getting a dividend. Thanks to the president of oil-rich Venezuela, Hugo Chavez, 45,000 low-income families in Massachusetts are getting heating oil. It’s worth $9 million, enough to last about three weeks, a savings of about $184. This winter, higher oil prices should raise heating oil 30% to 50% in the chilly Northeast. Local charities will determine who’s poor and worthy and who’s not, another way the largesse is not a dividend to everyone. (Boston Globe, November 20, via Norie Huddle)
Cash socked away in trees
The doubting often claim that land no longer plays any role in the strategies of the wealthy. Yet with the stock market sliding sideways and so much surplus cash from the super rich flooding into bonds, driving down their returns, money managers turn to buying up millions of acres of forest land – not just in America but in Brazil, Uruguay, and New Zealand, where Harvard University is the second-largest holder of timberland. Forests let investors diversify; their performance historically is uncorrelated with those of stocks and bonds – when they zig, timberland may do nothing or even zag. Harvard University earmarks 10% of its nearly $26 billion endowment for timber, an unconventional asset class. Ten percent is the amount usually recommended for gold. An enormous transfer of land is under way. Investors buy from giant paper companies, which cash in to boost their profits. One funds manager, Grantham Mayo, oversees 2.6 million acres of timber worldwide. Last year, they bought more than 5% of Maine, an area bigger than Rhode Island. Today, nearly $30 billion of American forestland is in the hands of investors, six times what financial investors held in 1994. The recent buying has pushed up timber prices, in some cases doubling in five years, despite weakness in prices of lumber. Investors expect forest products and the forest itself to rise in price, then sell out later. Hence another land-like bubble could be in the making. (Wall St Journal, Nov 4)
Warm ocean kills sea life
We relayed this story before; now a precise tally is in. Last summer, record numbers of dead seabirds washed up on beaches along the Pacific Northwest coast from central California to British Columbia in Canada. There were up to 80 times more dead Brandt’s cormorants, a fishing bird, than in previous years. Tests showed the birds died of starvation. Ocean water temperatures had soared to 7C above normal, which delighted bathers but caused the whole delicate system to collapse. The rise in the temperature of the ocean reduced the difference with the temperature of the land. That weakened the offshore breezes, which used to push warm water out to sea and bring up cold water with its plankton. The amount of phytoplankton crashed to a quarter of its usual level. Less plankton meant fewer fish and less food. The population of seabirds, such as cormorants, auklets and murres, and fish, including salmon and rockfish, fell to record lows. (The UK’s Independent, Nov 13, via Alanna Hartzok)
Black budget rip-off
MZM Inc grew from a small-time Pentagon consulting firm into a booming business. How? Over 30 times, MZM’s employees or political action committee donated to two members of the House Appropriations Committee — Randy Cunningham, R-CA, and Rep. Virgil Goode, R-VA — in the days surrounding key votes or contract awards. Both lawmakers sit on the subcommittee overseeing the Pentagon’s spending and have acknowledged putting language in bills that created or expanded contracts that went to MZM. A company that MZM’s CEO, Mitchell Wade, controlled paid $1.675 million for the house of San Diego Rep. Cunningham, then sold it eight months later at a $700,000 loss, while Cunningham traded up to a more expensive house in Rancho Santa Fe CA. Headquartered in a town in Virginia, MZM refused any direct assistance from that state, which would have required it to repay the money if the company didn’t meet job-creation targets. Also, MZM insisted on paying only $400,000 for a building that had cost the town more than $1 million and demanded that it be exempt from property taxes for five years. At its peak, MZM had nearly $200 million in government contracts. Since 2001 September 11, secret Pentagon spending has increased by nearly 48% to about $27 billion a year, for which a small pool of companies qualify. (USA Today, Nov 9)
Wages at 30 year low
Wages have been rising nominally; average pay rose 8 cents in October to $16.27 an hour. In the 12 months ending in September, wages and salaries for private-sector workers rose 2.2%; it was the slowest rate since 1975. After inflation, American workers earned 2.4% less than they did a year ago. It was worse in 1979 when wages and salaries, adjusted for inflation, dropped more than 4%. Some of the sluggishness is because employers have been increasing payments for benefits, such as health care, at the expense of wages. International competition has led to a loss of union manufacturing jobs, which pay more on average. So the job market did not pick up after the 2001 recession. Still, the loss in salary is unusual, particularly given a relatively tight labor market and surging energy prices, which in the past fueled wage increases. The share of the economy going to labor’s wages has been declining, as the share going to corporate profits is on the rise. (USA Today, Nov 22) Another oddity is productivity rising from last quarter’s 2.1% to 4.7%, the fastest jump in two years (Oregonian, Dec 7). Before the 2001 restructuring of the economy, more wealth output from less labor input would let employers up wages. Not any more. (The Oregonian, Nov 4) All the more reason for us to pay ourselves a Citizens Dividend from society’s surplus, from the burgeoning values of sites, resources, ecosystem services, EM spectrum, corporate charters, and other government-granted privileges to the well-connected. Let’s not concentrate it in few pockets but spread our commonwealth around to everyone.
Housing market, Q3
Third quarter, sales of existing home set another record; prices jumped nearly 15% from a year earlier. In the July-September quarter, sales of single-family homes and condos rose to a 7.24-million annual pace, up 6.5%. The median price of a single-family home climbed 14.7%, year-over-year, to $215,900. Median prices ranged from $72,800 in Danville IL to $721,900 in San Francisco. Elmira NY and Decatur IL were also among the least expensive markets, while Honolulu, Anaheim CA, and San Diego ranked with San Francisco as the priciest. Prices swelled most steeply in Phoenix, up 55.2% to $268,000. In Orlando, home prices rose 44.8% to a median $261,300, while Cape Coral-Fort Myers FL saw a 42.5% price gain to $277,600. Six areas had small price drops – they were lower-priced cities with large inventories of unsold homes, a weak job market, or both. (USA Today, Nov 15)
Average prices of all homes jumped 12% from the third quarter of 2004 to the same period in 2005, a historically rapid pace but a slowdown from the previous period as markets in the Pacific states and New England lost momentum. The increase was down from a 13.4% increase from the second quarter of 2004 to the same period this year, which was the biggest rise for a comparable span in more than a quarter-century. The rise in the cost of housing in general far outpaced the rise in prices of other goods and services included in the consumer price index — 12% vs. 4.5%. (AP, Dec 1)
Housing market, October
Sales of existing single-family homes, co-ops and condominiums declined 2.7% from September to a seasonally adjusted annual rate of 7.09 million units. The decline would have been larger if not for a spike in sales in such areas as Houston and Baton Rouge, the new hometowns of those displaced by recent Gulf Coast hurricanes. From a year ago, sales were up 3.7%. The national median price for existing homes sold soared to $218,000, a 16.6% gain from October 2004 — and the biggest annual jump since 1979, when inflation was raging at double-digit rates. (MarketWatch, Nov 28)
Sales of new homes were up 9% from a year ago, the biggest rise since 1993 April. Its annual rate of 1.42 million units set a record, smashing the previous record of 1.37 million set in July. Despite new home sales jumping by 13% in October (from September), prices tended to level out. The median price of a new home rose 1.6% to $231,300. Their median prices are up just 0.9% in the past year. (MarketWatch, Nov 29) Housing starts fell 5.6% from September, and 2.3% from a year ago, while permits for future building dropped at the fastest pace in six years. (The Oregonian, Nov 18)
As recently as October, Robert Toll, CEO Toll Brothers, one of the biggest builders of luxury homes, said housing market fundamentals looked strong through 2010. However, back in July, he and other home-builder insiders sold 4.8 million shares of their stock worth $333 million. That’s the most stock sold by home-builder insiders since 1990. On July 20, Toll stock peaked. Now its down $24.34, or 42%, erasing $3.8 billion in shareholder value. (USA Today, Nov 9)
Homes very overvalued
Did we take a step back from the brink? The number of cities where home prices are “extremely overvalued” – 30% higher than prices should be based on historical price data, incomes, mortgage rates, and population density – did dip slightly in the third quarter. However, the percentage of the country’s housing market ready for a price correction nudged higher, based on data from 299 metro areas that account for 80% of the single-family home market. While the number of significantly overvalued cities fell from 67 to 65 last quarter, the percentage of the market with out-of-whack home prices rose from 35% to 38%. For the second straight quarter, Naples FL topped the list, with homes 84% overvalued. The rest of the top five: Merced CA, 76.7%; Salinas CA, 74.8%; Port St. Lucie FL, 72.2%; and Stockton CA, 72.0%. Newcomers to the at-risk list include Phoenix, 34.8% overvalued; Pensacola FL, 33.2%; Orlando, 32.7%; and Honolulu, 31.3%. The study’s 30% threshold is based on the typical degree of frothiness that preceded 63 known price declines since 1985. Almost two thirds, 41 of the 65 significantly overvalued markets, were in California and Florida. Being overvalued 75% does not imply prices will collapse 75%; price corrections are generally about half the magnitude of the total overvaluation. Even declines of that size are unlikely unless an economic shock occurs. (USA Today, Dec 8) Is that a shock on the horizon? Some investors worry about the shakiness of Fannie Mae and Freddie Mac.
Fannie & Freddie in a fix
Government-sponsored mortgage buyer Freddie Mac said its earnings for the first half of 2005 were actually $220 million lower than originally reported. After the adjustment, the company earned $1.4 billion in the first six months of the year, instead of the $1.6 billion reported on Aug. 31. The company said it had miscalculated these amounts since 2001 because of an old computer system. (AP, Nov 8)
Fannie Mae said it has identified a problem related to hedge accounting that will lead to an estimated net cumulative after-tax loss of about $8.4 billion as of Dec. 31, 2004. Further, Fannie said it identified errors that will cost it $2.4 billion to remedy related to misapplied cash-flow hedge accounting for its mortgage commitments. The company also said it’s reviewing its accounting for certain insurance transactions and, to date, has “determined that one mortgage insurance policy did not transfer sufficient underlying risk of economic loss to the insurer, and therefore does not qualify for accounting as insurance.” The company also said it has booked a $257 million after-tax charge for the effects of Hurricane Rita and Hurricane Katrina. Fannie’s exposure to losses as a result of the hurricanes “arises from its guaranty of principal and interest payments due to holders of Fannie Mae MBS secured by property in the affected areas, its portfolio holdings of mortgages and mortgage-related securities secured by property in the affected areas, and real estate that it owns in the affected areas.” It also identified problems with its accounting for investments in low-income-housing tax credits and synthetic-fuel businesses. (MarketWatch, Nov 10)
Gold gathers up surplus
Last year at our community college, I gave a course on the business cycle: First, people invest in stocks and bonds so producers can grow the pie. Then, their added wealth pumps up land values, so some speculate, withholding some prime sites, underutilizing others, which is counterproductive. Next, that hampers output until the economy shrinks. Responding to these swings, the savvy investor moves his savings in then out of three sumps: out of stocks and bonds before they peak into real estate and REITs (locations, actually), then before that wave crests into Euros and all that glitters until the nadir passes, then back into stocks and bonds. (So, you wonder, why wasn’t Hegel rich?) Silly me, I was too busy geonomizing to follow my own advice.
After lagging so long, gold had to catch up some time. Since 2001 April, when you could buy an ounce for $255.95, gold has steadily risen. Gold closed above $500 for the first time since 1983. Gold for February delivery, at $533, hasn’t traded that high since 1981 April. Year to date, it’s up almost 18%, or $80 an ounce. The surge of the past months has come even as the dollar has strengthened and the Federal Reserve raised its lending rates, going against the typical pattern for the metal. (MarketWatch, Dec 9) Since the US quit the gold standard in 1971, central banks have been selling their reserve. Lately, some central banks, notably Russia, are stocking the metal. Bankers and others worry about the economy’s reaction to high oil prices and suspect it’s nearing the end of the cycle. Gold is more a port in a storm than a moneymaker; correcting for inflation, gold’s return over time is zero. (Chrs Sci Mntr, Dec 6)
Indians glom onto gold
Some buy gold because now they can afford to feed their craving. With a stockpile already worth $200 billion, Indian gold purchases jumped nearly 40% this year, making the country the world’s leading consumer of the precious metal. Rural women can wear it, keep it safe, in a form where it can’t be frittered away. The country’s growing middle class doesn’t trust company stocks and bank deposits, preferring physical assets like gold and land. Yet it would be better if the money locked up in shiny yellow metal went instead to finance new start-ups or better roads, boosting the Indian economy over the long term. Money spent on the precious metal could be cutting the country’s economic growth by 0.4% per year, which means billions of dollars in lost wealth annually. (Christian Science Monitor, Dec 7)
While some stockpile gold, others turn metal commodities into real goods. With Asia and the Americas growing, the global economy is craving metal. Silver is trading above $9 per ounce for the first time since 1987. Platinum reached its loftiest level in more than 25 years at $1,012 an ounce. March palladium hit a 20-month high of $300.50. Copper rose to a record $2.183 a pound before dropping 0.2 cent to $2.028 a pound. (MarketWatch, Dec 2) Over $2 a pound, copper has more than doubled since 2001. Zinc and lead prices are at five-year highs. Typically, bull markets in commodities can last for decades, or at least until supply overtakes demand. (USA Today, Dec 1)
FROM THE OP-ED PAGES
Across the pond
The Guardian(Dec 3): “After staggering economic and technological advance but still no end to poverty, we still need a mechanism to widen access to economic resources without threatening individual freedom. A neat solution was proposed more than a century ago by an American economist named Henry George. Instead of taxing effort and enterprise through taxes on incomes and profit, tax ownership and the exploitation of natural resources. His ideas promise an economy in which individual freedom and social justice become co-dependent rather than mutually exclusive.”
The Institute for Public Policy Research, the UK’s leading progressive think tank, on Dec 2 released the book, Time For Land Value Tax? edited by Dominic Maxwell and Anthony Vigor with contributors Iain McLean, John Muellbauer, Richard Brooks, and pal Karl Widerquist. “Land Value Tax could help in the reforms of Council Tax, local government finance, planning and housebuilding, as well as promote macroeconomic stability. Introducing changes will require long-term planning, detailed economic and distributional analysis and, above all, political courage. With vision and patience, a consensus is possible. Now’s the time to seek it.”
“The Scottish Greens at its annual conference narrowly agreed to bring in land value tax alongside more traditional forms of taxation by 31 votes to 30 with 21 abstentions. Critics of land value tax claim the move could lead to residents being forced to sell their homes.” (IC Dunbartshire, Nov 6, via Josh Vincent) Eventho’ critics are wrong logically and empirically – not taxing land lets speculators bid up prices, forcing young workers to rent for life or tempting older owners to borrow late in life and risk default – critics are right emotionally. To soothe people’s worries, proponents should never say “land dues” without saying “rent dividends”.
Great Lakes’ great ideas
Syndicated economist Hal R. Varian (NY Times, Nov 17): “Politics has ensured that the tax code is a giant subsidy for housing. There is the mortgage interest deduction, the deduction for property taxes, the capital gains exclusion, the deduction for points on mortgage loans, the deduction of up to $100,00 on home equity loans. And there are many more tax breaks, among them home office deductions. Housing is highly subsidized in this country. The most fundamental subsidy is that homeowners are not taxed on the implicit rent they receive from their housing investment. It would make a lot of sense to eliminate the housing mortgage deduction entirely. But the housing tax subsidy has been built into housing prices, and cutting back could lead to painful capital losses on home values. To make cutting housing subsidies less painful, reduce tax rates on other forms of investment.” While we say “housing”, actually it’s the location, the land, that’s so favored.
The Oakland Michigan Press(Nov 13, via Mark Monson): “The most important aspect of House Bill 4369 is its inherent recognition of the economic fact that property taxes on improvements as opposed to the land under them are unwarranted and destructive. Under land value taxation, the property tax is based on the value of the site – not of the site plus what’s on it. The latter is not taxed. In other words, a piece of property would pay the same tax, based on the value of its location, whether the owner parked cars on an asphalt lot or had built a 10-story parking garage. There is a moral case to be made for taxing locations – land – and not the buildings. The landowner rarely creates its value. Instead, that mainly comes from improvements made by the general public, such as adjacent roads.”
The Cleveland Scene(Spt 10, via Monson): “The property tax system effectively punishes property owners who improve their lots, be it with a high-rise or a screened-in porch. Slumlords and speculators, meanwhile, enjoy lower taxes for keeping their land idle and neglected. Henry George, a 19th-century populist, held that society made land valuable, so society should receive the benefit. He promoted a single tax on land and the elimination of all others. George greatly influenced the public life of Tom Johnson, the visionary businessman who was elected mayor of Cleveland in 1901. The Johnson statue on Public Square clasps a copy of George’s manifesto, Progress and Poverty.”
FROM THE ARCHIVES
Schools persecute Georgist
“Look at the record of school boards and administrators in this state before tenure offered a degree of protection to faculties. Their conduct demonstrates the need for permanent status for teachers once they pass a reasonable probationary period. In 1887, renowned San Francisco educator Kate Kennedy was dismissed by the local board primarily for her association with Henry George and the single-tax movement.” (LA Daily News, Oct 31, via Mark Monson)
America Beyond Capitalism
Ally Hanno Beck, more attuned than this editor, noted the original review a few issues back was too skimpy and asked that it be elaborated. So it is:
Subtitled “Reclaiming Our Wealth, Our Liberty, and Our Democracy” by Gar Alperovitz (2005), it details the problems of the country – income gap, time famine, sprawl, sexism, etc – and the response of American communities to them, which he dubs the Pluralist Commonwealth. A fan of democracy, Gar sees his beloved crumbling under the power of corporate lobbyists and stretched to the breaking point by the maldistribution of wealth. Gar identifies trends during the first years of the 21 c. – the disconnect between government and citizen, between corporation and Jane and Joe worker – that are impelling communities to adopt practical solutions without outside assistance. The major political parties either ignore these challenges or propose failed ideas. So things may get worse before they get better.
While many of the solutions that states and localities come up with are not new, they are embraced without ideology – people just find them fitting their needs. Gar, an organizer turned historian, identifies this popular response as a new phase in American politics. He covers the three previous major phases – major realignments of political sectors – characterizing them and identifying their turning points. When enough communities turn to themselves and in various ways share their own wealth, that will amount to a whole new system at the federal level – Gar’s Pluralist Commonwealth. Going beyond the usual litany of complaints about the abuses of political parties and corporations, Gar dwells on solutions, weaving them together into a new system. Yet readers need drama, as in Korten’s “When Corporations Rule the World”, a success Gar’s book probably won’t match.
Which is a pity. Gar’s ideas are hopeful, even visionary. Doing more of the cooperative projects that are already working, people can change the system. More than list all the progress heartwarming to the left – land trusts, nonprofits providing services, firms owned by workers and governments, and government as venture capitalist – Gar also moves beyond the left by acknowledging the disappearance of work, the possibility of shrinking the workweek, and the need for an income apart from labor, spilling ink over the Alaska oil dividend. He still assumes political participation trumps economic justice – that making it possible for people to speak at endless meetings is a blessing – but that’s forgivable, since he also insists upon time off from work. It’s a wealth of information and well written. Gar is also a new contributor to my geonomics college textbook to be published by Elgar, Inc.
LA Times, Nov 29
“In the great sweeps of public land, said bestselling 19th century author Henry George, Americans would find strength to keep alive the ‘consciousness of freedom.’ Mountain peaks and sagebrush flats and willow bottoms would be ‘wellsprings of hope,’ even for those who never set foot on them. Then came the Sagebrush Rebels of the 1980s; government agencies started running the outback for profit. Which led to some memorable fits of lunacy, including a study that determined that a day in the wilderness is worth the price of a movie ticket. Even the environmental movement was willing to trade the landscapes for tourism dollars. For 30 years I’ve been thankful, as Aldo Leopold put it, to have never been young without wild country to be young in.” (via Mark Monson)
ZT Net Blogs, Paul Murphy
“Since the value of location is created by society, taxing that surplus or locational value is said to be fairer than taxing the value created by a land owner through agriculture or mining. Land speculators make money, so do market speculators – but the money they make doesn’t have anything to do with the real value of the land, or the stock: it’s based on the difference between earned valuation – market cap as a function of real or expected earnings – and the actual market cap. Google sells at $360 because their surplus is absurdly positive – they’re in a virtual Tokyo of their own – while Sun sells at less than $4.00 because their surplus is absurdly negative – they’re exiled to a virtual Saskatchewan.” (Paul’s an IT consultant; Nov 4, via Mark Monson)
Own or rent a home?
Mark D. Nedleman, Californian personal organizer (Nov 20): “Most everything in California is very inflated and unreachable. Coupled with a possible debt collapse, I don’t want to be stuck with a mortgage. Yet I find myself tiring of renting (since college days) and owning a part of the American Dream feels irresistible. I could get a condo/townhome in Portland, rent it out while I see what happens, as I feel somewhat attached to the Rose City. What’s your stand on homeownership?”
Editor: All for it. Everybody should have one. And each family could if the cost of the location were separated from the cost of the home. That is, we’d pay land dues for the land and thus a greatly shrunken mortgage for the building.
Peak oil accommodated?
Reed Wagner, Portland Metro researcher, (Nov 7): “Councilman Rex Burkholder will be in Denver for Peak Oil? Have you discussed this with him?”
Editor: Not til now. Life after Peak Oil can go on. Public recovery of land values, via shifting the property tax off buildings onto locations, would reduce urban demand for oil: One could (1) make buildings more energy efficient without incurring more tax liability. Owners of spendier downtown sites would infill cities; denser cities would save energy, twice: (2) contiguous buildings leak less heat, and (3) city dwellers drive less and ride more. Also, this tax shift sets the stage for others. After taxing land, tax oil and gas and coal, making their monolithic use less profitable and relatively, (4) alternatives more profitable. After de-taxing improvements, de-tax income. No tax on wages makes it easier to hire people to do labor-intensive work like (5) de-construction and recycling, saving energy in industry, and like (6) organic gardening, saving energy in agriculture. No tax on earned profits makes it (7) easier to invest in energy alternatives. And (8) rather than keep engorging energy corporations with myriad subsidies, if you earmark some of the recovered land value for a residential dividend, then you have a model, like the Alaska oil dividend, for spending the raised revenue on all citizens instead.
Money or politics stops us?
Richard, Green Party (Nov 30): “The basic problem is gaining access to the governing system.”
Editor: We got access. We don’t got victories. Victories go to those with money. Not just any money, but our money. Developers control local politics, spending local site values as contributions to local candidates. The “oiligarchy” control global politics, spending oil “rents” as contributions to national candidates. Again, it gets back to the money we spend on the nature we use, this immense flow of wealth and what’s done with it, and who should get it – the public themselves.
Richard (Dec 1): “You are right.”
In the media
The US Society for Ecological Economics Outreach list (Nov 11) announced the fall issue of this newsletter. The Coalition for a Livable Future (huge in Portland OR) in their INFO WEEKLY DIGEST (Nov 9) for the first time announced one of our events. It was our class on the housing bubble popping.
On the podium
November 12 in Portland, with Aussie forecaster Phil Anderson we hosted a class, “The Housing Bubble Pops: then what do you do?” The American economy for the next five years should repeat what it’s done for the last 300 years – follow the real estate cycle. The few paying customers who showed up learned how to redirect the value of land to benefit everyone and to prepare for the cycle’s next phase. November 18-20 in the nation’s capital at the Southern Economic Association Annual Meeting I addressed the need to deal with rent or forget sustaining anything. About 15 attended, and given the number of concurrent sessions, that was a flattering turnout. One number-cruncher showed that only 10% of the housing bubble was due to mortgage interest rates; 90% was do to “local factors”, things one might sum up as location or land.
Frank de Jong, Canadian Green Party candidate (Nov 14): “Jeff, do you have an electronic copy of your piece, Ecologizing our Cities?”
Editor: All yours. Anyone else want a copy?
Jon Dame,senior in economics at Bard College (Nov 15): “Have you recommendations for reading? I have been reading more and more of your on-line articles and find them very clear-eyed and informative. If you need an intern, research assistant, etc. I would be willing to do grunt work for the right cause. I would like to express again my admiration of your work.”
Paul Metz, Euro energy consultant to the LandCafe e-list (Nov 10): “Great info! I forwarded to a number of African contacts.”
Howard Kronish, Portland entreprenuer, in his letter to 1000 Friends of Oregon (Oct 18): “You will note Jeff Smith is listed as an Advisor to Common Ground – USA and as a local resource.” Then to us (Nov 12): “Great issue. Don’t know how you do such an exhaustive and comprehensive job. You are a miracle worker for the cause. I’ll send you a check for the subscription.”
Stephen Bezruchka, MD, Washington prof (Nov16): “In the Health Olympics, the US fell from 27th to 29th, behind Chile and Ireland and just ahead of Cuba. I’ve given quite a few more talks since we met in late April, and one was broadcast on Alternative Radio and another in October. Package your ideas in a 53-minute talk. I’m espousing economic justice as good medicine, and what you talk about is good medicine. Today, your paper arrived, and I ripped it open and read it, much more energized by the layout as well as the cartoons. The Commentaryettes were great, as was the monopoly bit. I’m going to send you money to be a sustainer so I can continue to receive these.”
Marion Sapiro, California retiree (Nov 22): “Thanks for your phenomenal work. You are a one-man army. Call on me for special projects as needed. Much love.”
Editor: Wow. Such a tangible way to show love. Watch out. I may just keep the phone lines jangling.
Newcomers, old stayers
The Sierra Club made it possible for me to attend the Oregon Land Use and Affordable Housing annual confab in Metro Portland Council Chambers on November 4. Organizers let me place our info on the registration table. Metro paid for the copies. The presenters did advocate abating taxes on improvements and taxing land when it’s rezoned or its title changes hands (not quite geonomics, but inch by inch). One speaker said the Property Tax Shift is “one of those things that every economist agrees with but nobody seems able to advance.” The Lincoln Institute for Land Policy granted me and a guest two scholarships to attend their all-day workshop November 14 at a fancy downtown hotel on “Land Use and Property Rights in America”. The Robert Schalkenbach Foundation made it possible for me to attend conferences out-of-town and follow up with contacts made. Our autumn Geonomist elicited enough renewals and newals from patron Marion Sapiro (California leader), stalwarts Ernie Kahn (Massachusetts activist) and Mel Leasure (Virginian leader), sustainer John Morales (Missourian retired from the Panama Canal), and subscriber Sue Walton, and others to cover the costs of copying and postage. 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.
WHERE FROM HERE?
December 30th, there’s an informal symposium with cohort Nic Tideman, ex Reedie, Chicagoan, Harvarder, now at VPI (and once a senior staff economist for a presidential commission), if you’d like to join us.
January 6-8 in the country, the Bus Project Conference to Engage Oregon, “Rebooting Democracy”, is where to meet allies.
January 10 in Portland, celebrate MLK’s birthday at our class, sorting out racial reparations vs. Citizens Dividends, at the Belmont Library on Tuesday at 6:45 PM.
February 24-26, Philadelphia, the annual conference of the Eastern Economics Assoc includes a track sponsored by the US Basic Income Group. BIG asked for the argument why the funding for an extra income for all must come from our spending on nature, not from our earnings for our efforts.
What you can do I: Order
Our new T-shirt above is ready in time for Chrassmis. Wear it on your midwinter vacation to the tropics and all thru summer. Plus it tucks in nicely under your tux or wedding gown. It’s black ink on white cotton, in all sizes. At $10 per, how many would you like?
What you can do II: PayPal
Clayton Berling, California soccer leader (Nov 23): “I understand we can send you $ via PayPal. How do I do it? I can’t see a link for that on your web site.”
Where society jumped the track is at rent, its own surplus – people overlooking all the money they spend on the nature they use. Help us point that out. Win geonomics, so sharing society’s surplus is the norm, and that’ll make the world work right for everyone.
What else you can do, IV
Judge a fair
share not by
one being a
by the color
Celebrate MLK’s birthday at our class, sorting out racial reparations vs. Citizens Dividends, in Portland at the Belmont Library (on SE 39th) January 10 Tues, 6:45 PM.
May your Solstice be Merry.
Dear Forum on Geonomics (an educational IRS 501[c]3);
Up to 75,000 of the single-family houses built last year were put up on parcels where a house had been razed (Time, June 13). What’s exploding in value is not the house; the building is older, more worn out. It’s the location, near a sunny coast or a cool city’s downtown.
Some owners borrow against their sites to invest in stocks and bonds. From the Federal Reserve’s most recent data, from 2001 to 2002 (bearish years), the extracted equity used to buy securities was 11%; during 1998 and 1999 (very bullish years), it was only 2%. As a whole, re-financiers may not be the savviest of investors. (San Jose Mercury News, 2004 December 22)
One out of every eight Americans lives in California, where the median price of homes+sites has gone thru the roof. Yet wanna-be buyers bid against each other. In Los Angeles, they ask their real estate agents to write recommendations on their behalf, even attach photos. (CNN/Money, March 10) (Cont’d p 2)
Geonomics is …
a way to connect the dots. Making the cyber rounds is “The Cavernous Divide” by Scott Klinger, from AlterNet (posted March 21): “As the number of billionaires in the world expands, so does the number of those in poverty.” Duh. The yawning income gap is not news. Nearly every issue of our quarterly digest carries a similar quote. Yet the connection was worked out long ago by one of America’s greatest thinkers, Henry George, who labeled his masterpiece, Progress and Poverty. Techno- and socio-advances always enrich few and impoverish many. Yet progress also pushes up location values – the geonomic insight (is Silicon Valley cheaper now or more expensive?). Instead of taxing income, sales, or buildings, society could collect those values of sites, resources, EM spectrum, and ecosystem services via fees and dues, which would lower the income ceiling, and instead of lavishing corporate welfare, pay out the recovered revenue via dividends, which would jack up the income floor. Dots connected.
FROM THIS PEN’S PERCH
Fall on your sword, not!
In Oregon, Senate Revenue held two hearings on SJR 1, Site-Value Taxation (SVT). At the first, seven people, mostly from Portland Metro, testified, all in favor. At the second, an informal roundtable discussion hosted by Sen. Charles Starr (R), Metro Councilman Rex Burkholder, founder of the bicycle activist group, spoke on shifting the property tax from buildings to sites and Kris Nelson of Geonomics, Inc did a Power Point. About 25 people showed up, including a Sierra Clubber, Wes Kempfor, but mainly business types. Most asked about SVT’s fairness. Supposedly, it’s OK to squander perfectly buildable sites, forcing development outward, creating sprawl, and not OK to recover the socially generated value of locations. I noted that places that do tax land, not buildings, are quite successful, like Sydney Australia; proponents are not asking anyone to drink poison or fall on their sword. However, like Lincoln said at the start of the Civil War, “It’s nice to have God on our side but we must have Kentucky.” While it’s nice to have real results on our side, we must have righteousness; voters must understand they are the rightful recipients of land value – a value we all create, of something none of us created.
Randy Tucker, Legislative Affairs Manager, Metro (May 27): “We entered this session looking for a chance to get some attention paid to SVT, not to pass the bill. We are doing what we hoped we’d be able to do. Yes, if the Senate passed the bill it would get more attention, but we’d want to ensure that it didn’t pass the House since it’s not ready for prime time. If it goes to the ballot, we are not prepared to run a ballot measure campaign (Metro can’t do that anyway).”
(Cont’d from p 1)
Home sites on second page
Yale economist Robert J. Shiller came out with Irrational Exuberance in 2000, which called the stock market bubble just before it burst, making the book a best seller. In 2005 he released a new edition, which notes real estate prices are rising much more rapidly than either construction costs or incomes. When this bubble bursts, it might set off a worldwide recession. (NPR Talk of the Nation, April 6)
“After the Housing Boom: What the coming slowdown means for the economy – and you.” This headlined the cover of Business Week (April 11).
The fact that prices are rising faster than rents, when the two usually move more closely in tandem, shows more purchases than usual are for speculation. (USA Today, May 11) In hot markets, speculators buy then resell after owning for less than six months. Such “flipping” in Las Vegas makes up 11.5% of home sales, up from 2.4% five years ago; in Los Angeles, however, flips decreased to 4.1% from 4.3%. For the nation, it’s 3.7%, up from 2.4% five years ago. (USA Today, May 22) The number of real estate investment clubs has grown fourfold since 2002, from 44 to 177. Non-affiliated clubs put the number closer to 500 groups nationwide. In contrast, the number of stock market clubs fell 46% from a 1999 peak of 36,151 to 19,646 at the end of 2004. (USA Today, May 23)
Alan Greenspan, Chairman of the Federal Reserve, denied a housing bubble but admitted to some “froth” (AP, May 21). Atlanta Federal Reserve Bank President Jack Guynn warned that some buyers and builders, especially in Florida, will get burned. The rocketing rise in price is not sustainable and may be topping off. Compared with previous double-digit gains, median new home prices were “only” 3.8% above the gain of 2004’s April. (USA Today, May 25)
Paul Krugman, the New York Times (May 27): “Stephen Roach of Morgan Stanley argues that we have not yet paid the price for our past excesses. America’s housing market, like the stock market at the end of the last decade, is approaching the final, feverish stages of a speculative bubble: 23% of the homes sold last year were bought for investment, not to live in; 31% of new mortgages are interest only. Even Alan Greenspan admits that we have ‘characteristics of bubbles’, but only ‘in certain areas.’ But these aren’t tiny regions; Florida and California are big and wealthy, so that the national housing market as a whole looks pretty bubbly. If the hectic pace of home construction were to cool, and consumers were to stop borrowing against their houses, the economy would slow down sharply. Now the question is what can replace the housing bubble, maybe the biggest bubble in U.S. history’.” (Via Polly Cleveland)
Hoping to leave no “paper profits” on the table, some owners delay sale. It shows we are in the late stages of a housing mania that is reminiscent of the dot-com stock market bubble. (USA Today, May 30) USA Today polled 55 top economists; 3/4 called housing overheated. Goldman Sachs reported to clients that homebuyers appear to be irrationally exuberant.
Beneficiaries – lenders, builders, and realtors – deny any bubble. They point out that the ratio of housing sales price to annual rental value is not as skewed as stock price was to earnings back during the 1990s stock bubble, except San Francisco’s ratio of 35 to one does match Microsoft’s price-earning’s ratio of 2000 (NYTNS, May 29). Yet stocks – where one finds day traders – always fluctuate much more wildly than do house+sites – where speculators need months to flip a property.
A typical existing home+site costs 3.5 times a median family income, compared with a longstanding 2.7 ratio. In hot markets on the coasts, price-to-income ratios are near peak levels of 1981 and 1989 (USA Today, May 11), just before the last tumble in home+site prices.
To afford debt, more people choose loans that are cheaper initially: adjustable-rate mortgages (ARMs) and interest-only mortgages. ARMs account for more than a third of home borrowing; they should have only 20%. Interest-only loans grew from 1.5% in 2001 to 31.1% last year. Once prices peak, then mortgagers won’t be able to resell at a profit or qualify to refinance with a more affordable loan. Borrowers defaulting could cause a recession. (The Oregonian, June 9)
As Baby Boomers near retirement, the affluent ones buy second ones. They consider lending rates low, which briefly rose to 6% for a 30-year fixed mortgage but fell back to 5.75%. For the growing population – young families and immigrants – banks offer interest-only and ARMs. More demand on finite land means in 33 of the nation’s 110 metropolitan areas, median home prices are four times median incomes. One in eight households devote at least half their income to housing costs; one in three devote a third. Yet Harvard U’s Joint Center for Housing Studies predicts sales and price to keep rising over the next 10 years. (The State of the Nation’s Housing: 2005; Washington Post, June 13)
Other economists predict the bubble to burst in 2005 or early 2006. Spending more on home+site means spending less on goods and services, so those providers earn less and spend less. With less business to keep people employed, some borrowers default, forcing more to, and the bubble to burst. When? While Robert Schiller’s first edition was timed perfectly, his second isn’t. If the 18-year land-price wave holds and Bush’s economic advisor Greg Mankiw was right 16 years ago, prices fall in 2007. How low can they go? In Boston, median home prices fell 6% in the early 1990s and 13% in Worcester, Mass. In New Haven, Conn., prices dropped 21% from the late 1980s through the mid-1990s. But the current run-up has been steeper so the collapse should be, too, at least a quarter, perhaps half. How long will prices stay down? In Japan, where sites were so over-blown that if one could afford to buy Japan once they could have bought America four times, the average price of land along major streets in 2003 was 115,000 yen per square meter, down 5% from a year earlier. While the margin of decline narrowed from the previous year’s -6.2%, it was the 12th straight year of depreciation. (Kyodo News in Japan Times, 2004 August 2) Can the media stay tuned for another two years?
War keeps Iraq corrupt
From Pearl Harbor to V-J Day took less time than Bush’s War on Terror, starting from 9/11. All the Arabs involved in 9/11 (no charges have been filed against any administration officials involved) came from Saudi Arabia, where the Bush people have close personal ties; none came from Iraq, which he attacked. Civilian con-tract managers have lost or stolen nearly $100 million from Iraqi oil sales and seizures from the former govern-ment of Saddam Hussein. They were hired to spend it on reconstruction projects in south-central Iraq. Controls were so lax that two agents hired to distribute more than $1.4 million left Iraq before accounting for all of it; the money remains unaccounted for. (USAT, May 4) For its part, Halliburton – which won its contract without competition from other bids, overcharged for meals and gasoline, and whose subsidiary operates illegally in next-door Iran – got a $72 million dollar bonus from the US Army, on top of over $10 billion billing (Oregonian, May 11). Reader John Morales (Apr 4) notes not every US oil company buys from the Mid East. From the Department of Energy, those that do: Shell (the most at 205,742,000 barrels), Chevron/Texa-co, Exxon/Mobil, Marathon/Speedway, and Amoco (the least, 62,231,000 barrels). Companies that do not import from there: Arco, BP/Phillips, Citgo, Conoco, Hess, Sinclair, and Sunoco. Drivers can choose to not buy from companies who buy from Saudis who fund terror.
Pollution spurs Chinese riot
In southeastern China, hundreds of police attacked elderly villagers, mostly women, who were protesting against chemical factories polluting the air, the river, and the farmland. In reprisal, thousands of residents of Huaxi in Zhegian province rioted, overturning police cars and driving away officers. Police barred reporters but local people used phones to get the word out. One reporter who got in was detained and had her notes confiscated. Last year, tens of thousands of rural folk rioted in western China in Sichuan province over environmental issues. The federal government has ignored all petitions to make the factories efficient enough to preclude pollution. (The Oregonian, Apr 14) As China changes from communism to capitalism, it shows neither ideology to be environment-friendly. Capitalism is not a free market; it’s a partnership of the elite and the state taking advantage of the market. Freedom is not license but liberty. One’s liberty depends on another’s responsibility; people must be responsible enough to respect rights for individuals to be free. To be free from pollution, industry must respect the right to live in a healthy environment. Government must defend that right. Then industry won’t cut corners and let its byproducts pollute others, but seek ways to minimize input, thru-put, and useless byproducts, thereby cutting costs and saving money. Doing so would also save the health of residents and of the environment.
Tallest tower, deepest drop
Over the past three years, the Euro has gained 50% against the dollar. The World Bank predicted the dollar to keep declining but not meltdown and the world eco-nomy, from its 2004 peak, to slow down. As the Federal Reserve raises its rates, foreigners buy more U.S. stocks and bonds; how much they bought, minus how much they sold, was up almost 10% in the 12 months ending February, slowing the dollar’s fall. Yet the higher rates create more debt, which is what spooked investors in the first place. The weaker dollar, rising U.S. interest rates, declining stimulus from previous U.S. tax cuts, and higher oil prices, make Americans buy fewer imports, slowing foreign economies. If nations add new tariffs, the downturn could turn into a global recession. The World Bank expects the global economy to pick back up in 2007, a fateful year. (USA Today, Apr 6)
Building skyscrapers take so long to envision, plan, design, find financing, and build, that when the new tallest building in the world is finished, it coincides with the end or nadir of that business cycle; the discoverer named this correlation the Big Erection Indices. The classic example is New York’s Empire State Building opening in the bottom of the Great Depression. Now Dubai is building the latest record-setter – over 20 stories taller than the current tallest in Taipei, 101 stories – and already has its pilings planted in the ground, 160 feet down. Its height will be enough for the structure to sway 10 feet back and forth. They plan to open in 2008 (The Oregonian, March 31) – a year into our recession.
Ex-reds adopt flat tax
After the wall came down, Eastern Europeans had a hard time growing business and getting business to pay taxes. So Russia, Ukraine, Georgia, Romania, Slovakia, the three Baltic countries, and three Yugoslavian nations adopted a flat tax. Pushed in the US by wealthy players like Steve Forbes and the Hoover Institution, the flat tax levies the same tax rate on all incomes from small to big. The rate is low enough and the filing simple enough that most citizens and companies comply with the law, unlike before. While former communist nations turn back to a flat rate, it was Karl Marx and followers who over a century ago won graduated rates in capitalist countries. The flat-taxers set their rates lower than richer, neighboring nations with graduated income tax rates, which attracts business and investors. To compete, Austria lowered its rate from 50% to 34%. Most Western European nations have high rates to fund extensive social services, including foreign aid to Eastern Europe. (Christian Science Monitor, March 8) Worldwide, the rich have deposited $11.5 trillion in the 70 tiny tax-haven nations (Tax Justice Network; it’d be more, counting deposits of rich corporations). Better than taxing the rich to serve the poor is to quit creating the rich – abolish corporate welfare and tax breaks for owners of nature – and quit creating the poor – from recovered rents, pay citizens a dividend. Endowed citizens won’t need costly social services. Use the flat tax to fund cops, courts, and military so that if a nation feels invasive, its citizens will feel the war fever first where it hurts most – right in the pocketbook.
Tax break for multinational
Politicians granted huge corporations doing business overseas a one-year tax holiday rate of 5.25% instead of the usual 35% if they would bring their profits home. Congress explained that by spending the profit in the States, firms would generate jobs here. So far, Sun Microsystems said it may declare $1.1 billion as domestic profit and laid off 3,600 people, 10% of its work force. National Semiconductor said it may repatriate a half billion dollars and cut 550 jobs, 6% of its work force. Colgate-Palmolive may bring home a half billion dollars and promised to eliminate 4,400 jobs, 12% of its work force. The law, which they called the “American Jobs Creation Act”, may return $320 billion to the US, but not generate jobs. (The Wall Street Journal, March 10) If not trying to dodge taxes, firms might make sounder decisions. Instead of trying to tax corporations downstream, do not enrich them upstream with subsidies, loopholes, and free services. Charge them full market value for all the pieces of paper that government gives them that create so much value – charters, waivers, franchises, patents, licenses, leases, and titles – and use that revenue to fund a Citizens Dividend, liberating workers from dependence on jobs.
Smog rules follow politics
In the spring, Bush’s EPA announced its rules for polluters. It set tougher standards for polluters and counties in states that voted for Kerry and lax rules elsewhere, letting some polluters use techniques that pre-date the Clinton era. People breathe the dirtiest air in California, mainly from cars, and in the Northeast, from cars and coal-fired power plants. While reducing smog could raise electric bills by one dollar a month, it would save many times that in lower costs for medical attention and prolong many thousands of lives of newborns, asthmatics, and the elderly. (MSNBC, April 15, tax day) Since some stubborn companies prefer to pollute at a profit rather than profit by efficiently tapping energy, we could lure them to eliminate their waste by no longer taxing or subsidizing them and spur them to find efficient ways by charging them for the costs they impose. Investors would take note and shift their portfolios from polluters to more efficient alternatives – such as solar power and fuel-cell cars – thereby funding the transition.
Cars get Free Ride
General Motors and DaimlerChrysler wrangled $88 million from the US to put a few dozen hydrogen-power vehicles into service by the end of the decade. The grants are part of $1.2 billion that the US will spend on hydrogen fuel-cell research over five years. These are the same carmakers who oppose standards for fuel efficiency and smog emissions. Not getting subsidies are small firms and basement inventors, where most break-thru ideas come from. Another subsidy for cars – the federal highway bill of $295 billion – includes a $37 million road for Wal-Mart. Bush pledged to veto the bill, which the Senate can easily override, having passed it 89 to eleven. Vetoing it makes Bush seem frugal, yet had the vote been close, he might have had to sign it in order to serve his financiers. Given such gifts, gridlock is worse. In 2003, there were 3.7 billion hours of travel delay and 2.3 billion gallons of wasted fuel for a total cost of more than $63 billion. Half of all traffic delays are caused by car crashes. Traffic in some cities actually improved — due to less commerce. (USA Today, May 9) Better than subsidies for anyone would be no taxes on earnings and full charges for polluters, thus guiding investors from dirty, wasteful engines to clean, efficient ones. Over half of city surface is devoted to cars. If they paid their way by paying land dues, they’d claim less land. Owners would infill cities, providing riders for mass transit. That would clear the roads and the skies.
Logs get free roads
For the timber industry, money does grow on trees. To give timber companies access to new sources of timber, the US Forest Service builds roads thru national forests, spending enormous sums for little or no return. In 2004, the Forest Service lost almost $48 million in Alaska’s Tongass Forest alone. In the face of a worldwide timber glut, demand for Alaskan timber has plummeted. Between fiscal years (FY) 1998 and 2004, nearly 50% of the Forest Service’s timber contracts offered went without a single bid. Of those sold, 70% received only one bid. Forest Service estimates of demand range from three to seven times the past three-year average annual logging. In order to meet its inflated estimates, the USFS wastes money and trees. (Update from Taxpayers for Common Sense via the Progress Report)
CEO pay bubbles up, too
For non-supervisory private-sector workers – 80% of the labor force – wages fell a half percent last year after inflation. Add in supervisors and government workers and wages are down 0.9%. Productivity – more output from less labor input – has been growing, as has outsourcing abroad, so demand for American workers is down, while their costs are up, such as employer spending on rising medical costs. (The Oregonian, April 12) At the other end of the pay scale …
After three years of merely modest raises, many chief executives posted their largest windfalls since the 1990s. CEOs of the largest 100 public companies averaged $14 million in 2004, up 25% from 2003. Their compensation includes salary, bonus, incentives, stock awards, stock-option gains, and fresh option grants. Directors granted retention bonuses, supplemental retirement pay, reimbursed income taxes, and permitted personal use of corporate jets. Some of the biggest winners oversee small companies. Forest Laboratories’ Howard Solomon gained $90.5 million from exercising options; Coach’s Lew Frankfort got $84 million and fresh grants worth $130+ million. To rationalize their gifting, boards cited higher corporate earnings and stock prices but when companies under-performed they cited subjectives like leadership. While shareholders vote for directors, management nominates them, many of whom are former CEOs. To curb pay, set stringent perform-ance guidelines, and limit severance packages, share-holders put more than 100 proposals on shareholder ballots this proxy season. Even when such measures pass, boards often ignore them. (USA Today, Mar 31)
Very rich get very richer
The Forbes 400 – the world’s richest people – is still topped by Bill Gates at $46 billion. Warren Buffett is second at $44 billion. For the second straight year, billionaires are richer and more numerous. (Oregonian, Mar 11) Worldwide, 8.3 million people were millionaires in 2004, up from 7.7 million in 2003. Their combined wealth rose 8.2% to $30.8 trillion. About 2.5 million Americans, 1% of the population over age 15, have more than $1 million, not including the value of their primary residence. More than 80% of them believe the next generation will have money problems. Last year, millionaires spread their assets more conservatively. They put 34% in equities, 27% in fixed-income invest-ments, 13% in real estate investments, 14% in miscellaneous like hedge funds, foreign currency, and commodities, and kept 12% in cash deposits. (SF Chronicle, Jun 10) The richest got that way with the help of the law. Government did not charge them full value for their permits: titles to locations, leases for natural resources like oil and iron, licenses to wide swaths of EM spectrum, patents to intellectual turf which prohibit similar discovery by later inventors, etc. Nor did government recover and share society’s surplus, putting workers, especially low-skilled ones, at a disadvantage to employers like Walmart. An upstream solution forgets taxation yet precludes concentration: abolish corporate welfare and recover all rents, paring off excess corporate profit. End limited liability, so firms must pay any costs they impose. And pay a Citizens Dividend, so workers can negotiate a bigger share of the profit pie.
Homes starts & sales up
Following a plunge in March, when new housing starts dropped 17.6%, the steepest drop in more than 14 years, housing starts jumped 11% in April, to 2.038 million new units. While housing starts plunged 17.8% in the Northeast, they rose 6.2% in the Midwest, soared 25% in the South, and edged up 2.5% in the West. The volatility may warn of this cycle ending, or be due to inclement weather, or both. (CNN/Money, May 17) Construction spending hit a record in April, rising 0.5% to a seasonally adjusted annual rate of $1.07 trillion. It was the 15th straight month of record activity. Sales of new homes supposedly rose to a record 1.316 million units in April, 13% above a year ago (the Commerce Dept did revise lower its figures for February and March.) Sales of existing homes supposedly rose 4.5% in April (March figures were revised lower) to a record seasonally adjusted annual rate of 7.18 million. The old record was 7.02 million in 2004 June. Like starts, sales grew in three regions and were flat in the West. The inventory of unsold homes rose 8.1% to 2.48 million, a 4.2-month supply at the April sales’ rate. A six-month supply is deemed a fair balance between buyers and sellers. (CBS Market Watch, May 24)
Condos command top $
In Manhattan, the average condominium price tops $1.2 million. (New York Times, June 1) While New York is out of reach for many, Miami is not. Well-to-do baby boomers from the North nearing retirement and foreigners whose currency has gained vis-à-vis the dollar target South Florida. Despite four major hurricanes that roared across Florida last summer, causing $22 billion in damage and weeks of panic, Miami-area home values increased 20% in 2004, vs. a national gain of about 12%. Almost 70,000 condo units are in the permit pipeline or are newly built and for sale citywide. Last year Las Vegas – perennially among the USA’s hottest housing markets – issued permits for 40,000 units of all types of housing. Miami has so many gaping holes in the ground – where old buildings have been razed and new ones are planned – that downtown looks as if it has been bombed. Up to 70% of recent condo buyers are purchasing for speculation, betting rather than buying. Some builders, developers and lenders might be heading for a crash, as has happened there before. (USA Today, April 20) Indeed, Florida real estate popped back in the 1920s, just before the Big Crash followed by the Great Depression.
Metro housing: hot & not
Of 136 metro areas over the past year (April to March), home prices ranged from a low of $82,400 in the Youngstown-Warren area in Ohio, to more than eight times that in the San Francisco Bay area where the median was $689,200. Anaheim-Santa Ana at $656,900 was second and San Diego at $584,100 was third. Of the 20 cities with the fastest appreciation, 14 were in California, four in Florida and two in Nevada. The three fastest were in Florida: Bradenton jumped 45.6% to $275,100; nearby Sarasota was up 36% to $326,300; on the Atlantic side, the West Palm-Boca Raton area rose 35.9% to $362,800. All but six areas rose. Losers included Waterloo-Cedar Falls Iowa (down 2.6% to $86,500), Syracuse, N.Y. (down 2.6% to $92,600), and Canton, Ohio (down 4.5% to $103,400). Beaumont, Texas held the bottom with a loss of 6.5% to $90,000.
States & regions hot & not
The median price for homes+sites in the first quarter of 2005 rose fastest in Arizona, up 5.2%, and fell 0.4% in North Dakota. Over the 12-month period, it rose fastest in Nevada, up 31.2%. California, Hawaii, Florida, Maryland, and Virginia were hot, too. Prices rose less than 5% in Ohio, Indiana, Michigan, Kansas, Colorado, Oklahoma, Mississippi, and Texas, where prices rose 3.8% in the past year, the slowest. (USAT, Jun 1) Regionally, the West showed the fastest growth at 16.9%. In the Northeast, prices rose 14.0%. The Midwest had increases of 7.8% and the South had a 6.6% price rise. The median house+site price was highest in the West, at $282,900, and lowest in the Midwest at $148,800. (CNN/Money, May 12) Nationally, the median sales price hit $206,000, up 15.1% from 2004 April – the fastest year-over-year price gain in 25 years. Over the past five years, the median price of home+site – $206,000 in April – is up 55%. Along the coasts, it’s steeper, doubling in California and rising about 80% in Nevada and Hawaii. LA is up 135%, Las Vegas, 117%, Miami, 128%; Washington DC, 108%. (Time, Jun 13) Buyers who spent $1 million or more for a single-family home last year hit nearly 51,000 — 65% of them in California — a fivefold increase since 1999 when 10,000 paid $1 million or more. (USAT, Apr 7) Since 1998 (except in 2000), prices have risen at a record-setting pace.
Get rent via banks, builders
To profit from the real estate boom, investors can instead buy related stocks that are surging. With long-term lending rates still low, people still want more mortgages, enriching banks. Holding the stock of lenders, one does well. Shares of real estate investment trusts, which manage apartments, have returned 31% in the past year and 51% during the past three. Shares of one major builder, Toll, are up 131% since the end of 2003, which blows away the 21% rise of the median sales price of existing homes during that period; Toll sells at 11.2 times its expected 2005 earnings, vs. 15.9 for the Standard & Poor’s 500. Makers of building products from lumber to concrete and carpet are booming. Building Materials Holding’s shares have jumped 64% this year. (USA Today, May 26).
Property tax takes more
As high land prices pushed up property assessments, the property tax generated more revenue for states. Tax collections rose to a record $600 billion in the 50 states last year, up 7.2% over 2003, the biggest increase since 2000. The money is rolling in even faster this year as many states report double-digit revenue increases through April. Even with all that money, states still borrowed, tho’ in the first four months of 2005 it was 23% less than a year earlier. While happy to sell out for more later, homeowners are not happy to pay heftier property taxes now. In many states they push for caps on assessments, limits on rates, or no property tax at all. (USA Today, May 26). Which is perfectly opposite the right reform. Rather than exempt only the elderly, exempt everyone from the counterproductive part of the property tax, the part that falls on buildings. That part merely fines people for making improvements. The other half, the part that falls on the location, raise it and keep raising it until all the value of all locations is recovered. Then, rather than let government keep it and politicians and bureaucrats spend it, return it as a dividend to residents. It’d be like what Alaska does with some oil royalty and Aspen Colorado does with some land value, using it to assist residents with home+site costs in that pricey ski resort.
Growing far from centers
It’s harder for firms to attract workers to pricey markets. Experienced workers with seniority rights claim openings in cheaper rural locations. Mass migration from pricey areas to affordable ones is dubbed the “salmon run”. Like the plague in the Middle Ages, real-estate-price inflation is spread by the people who flee it. Flush with cash from selling or borrowing against homes, Californians bid up prices in Oregon ski towns, Arizona golf communities, and Nevada lake resorts. Putting bigger yards at affordable prices above longer commutes, Americans moved to counties on the edge of metropolitan areas. Several of the counties that grew the fastest from 2000 to 2004 are distant suburbs of major cities, from No. 1 Loudoun County in Virginia, 35 miles west of Washington, to No. 6 Henry County, Ga., about 30 miles south of Atlanta. Booming counties are not only in the Sun Belt, where growth has been relent-less for decades, but also in the Snow Belt, including Kendall County, southwest of Chicago; Scott County, south of Minneapolis; and Ohio’s Delaware County, north of Columbus. In California, far more people are leaving coastal counties than are moving in from elsewhere in the country. The drain is happening from San Diego, Orange, and Los Angeles counties in the south to San Francisco and Marin in the north. Births and foreign immigration, however, keep populations in most counties growing. (USAT, Apr 15) To reverse sprawl, make metro land affordable. Remove the cost of land from the cost of housing. With taxes, fees, or dues, recover the value of land; then with dividends, share land value among residents.
Farms just a cash cow
With stocks sluggish and mortgage rates low, more investors buy farmland and reap OK returns, such as 6.5% on a quarter million dollar investment while the land itself appreciated by 8% in one year. Since 1987, by when farms had dropped to 40 cents on the dollar, they’ve gone from $600 per acre to $1,360 per acre in 2004, a 52% increase when adjusted for inflation. Buying low and selling high, investors realize a tidy capital gain. Yet from 1986 to 2004, the S&P 500 returned 12% per year. So farms are not a better buy but a way to diversify when stocks drop. With farms listed for sale on the internet, more investors discover them. Since 1988, investors who live in cities and know little or nothing about farming have owned more than 40% of US farmland. The greatest concentration of absentee owners occurs where the land is most fertile and the harvests richer. They take their advice from big corporations – purveyors of chemicals and buyers of balk harvests – businesses that have so far opposed organic methods of farming. (The Oregonian, Mar 5) To make farmland affordable to farmers, recover site rents all over the region, driving site prices down, and pay citizens in the region a dividend, pushing farmers’ and the average person’s income up.
Gasoline cheaper now?
With inflation factored in, a bottle of Coke, which cost a nickel during World War II, costs roughly the same today. Eggs, milk, and bread now cost less; so do clothes and electronics. But not new cars, new homes, healthcare, and a college education; they cost much more. And oil? It spiked in 1980 April; at $39.50 per barrel then, it’d exceed $90 in today’s dollars. Energy makes up a small percentage of a family’s budget, about 4%, what it was in the early 1980s. Even during the oil embargo of the 1970s, it took a while before consumers began buying smaller, more fuel-efficient cars or moving closer to where they worked. (ChrScMtr, Apr 19) In inflation-adjusted dollars, gasoline prices peaked in 1981 March at more than $3 per gallon. Today’s prices are 30% below that all-time high. Gas prices were 17 cents per gallon in the 1930s, a quarter in the 1950s, and 50 cents in the 1970s. Yet looking at the time it takes to earn the money to buy gas, at today’s average hourly wage of $17.50 it takes seven minutes to buy a gallon of gas for ($2.10), as it did in the 1970s; in the 1980s and the 1950s, it took 10 minutes; in the 1940s, 12 minutes; and in the 1930s, more than 20 minutes. As a percentage of per-capita disposable income, the cost of 1,000 gallons of gas (a year of heavy driving) in 1935 would be 36%; in the ’60s and ’70s, about 12%; today, less than 7%. Since the mid-1980s, gas prices have held steady. (USA Today, May 31)
Costly benefits to living
Due to intense international competition, many companies have had to eat added costs for energy and other goods. Nevertheless, economists still blame energy for inflation, eventho’ the core rate does not count energy nor food nor mortgages. The core rate sped up to 0.4% in March from 0.3% in February, the biggest burst since 2002 August. In 2005 Q1, the core rate rose at an annual rate of 3.3%, the fastest quarterly rise since 2001 Q3. For 2004 core inflation rose “just” 2.2%. (Reuters, April 20) Yet even 2.7% doubles prices in 27 years. “John Williams, head of Shadow Government Statistics, estimates the current real consumer inflation rate is closer to 6%. The free market Agora Research put it at 7%-8%.” (GlobalCirclenet, Mar 21) Meanwhile, average earnings declined 0.3% in March, the same in February, and were down 0.5% from a year earlier. (Reuters, April 20) Again, the cost of living outweighs the benefits of living. To afford inflation, consumers borrow. Their debt at the end of 2004 was $2.1 trillion. That’s up 5% from the year before, up 9% from the year before that, and twice as big as 10 years ago. (USA Today, April 28) Debt inflates the money supply, which inflates prices. Instead of rising, prices should drop to reflect the falling cost of living (in constant dollars). To slow down inflation, the Federal Reserve has raised its basic rate eight times since last June, in quarter percentage point increments, to 3%. When interest payments weigh too much, fewer people borrow, which curbs the money supply, slowing down inflation. A less traumatic way to shrink debt is to cut the cost of what most people borrow for: home+site. Do that by recovering then sharing the value of locations.
FROM THE OP-ED PAGES
UK money, labor, CT daily
Over 12 million people, mostly in Asia, mostly women and girls in the sex trade, are slaves, kept at work by force. Slave owners pocket $13k per general worker and $23k per sex worker. The authors of the UN report said it’s time to reform laws on labor and land that herd people into slavery. (Oregonian, May 12)
The Financial Times (British ed, April 15) by Samuel Brittan: “The taxation of land raises revenue without disincentive. Henry George, a 19th-century American reformer, published a bestseller, Progress and Poverty. The excuse given by officials for taxing work and enterprise but not land values is that it is impossible to separate the cost of pure space. Yet this distinction is made every day by developers. In parts of the world, including Australia, there is some land taxation. ‘Boom Bust’ by Fred Harrison makes a case for the existence of an 18-year business cycle, which he links to speculation in property.” (via Michael Hudson)
The Guardian (April 12): ”The Greens have yet to secure a parliamentary seat at Westminster, but have two elected representatives in the London Assembly, two in the European Parliament, seven in the Scottish parliament, and around 60 councilors. The new Green party manifesto included replacing VAT with eco taxes such as aviation fuel tax and plastic bag tax, replacing business tax rates with a land value tax.”
The Hartford Courant(April 17): “We hope lawmakers get serious this legislative session about giving the state and municipalities effective tools to cope with random development. Permit cities to tax urban land at a higher rate than buildings. This discourages owners from holding vacant parcels and encourages development. The system has produced spectacular results in Harrisburg, Pennsylvania.” (Via Josh Vincent)
David Morris, President, Institute for Self-Reliance (their website): “More than a century ago, Henry George led a powerful movement based on the idea that by taxing the increase in the value of land resulting from public actions, many other taxes could be eliminated. In Hong Kong, its rail transit system receives no subsidy; all costs are paid from land rents derived from the development near stations. Bill Batt [a contributor to my textbook] concluded value capture has merit. If we were to use Oregon’s Measure 37 as the basis for a givings law, then 100% of the increased value of land due to government actions would be taxed.”
The Economist, Earth Day
April 21. “‘The environmental movement’s foun-dational concepts, its method for framing legislative pro-posals, and its very institutions are outmoded.’ Those damning words come not from any industry lobby or right-wing think-tank but from ‘The Death of Environ-mentalism’ [by ex-Sierra Club chief, Adam Werbach]. Yesterday’s failed hopes, today’s heavy costs and tomorrow’s demanding ambitions have been driving public policy quietly towards market-based approaches. If this new green revolution is to succeed, however, three things must happen. The most important is that prices must be set correctly. Then market forces could prove the environment’s best friend. If greens could learn to love them, they could move from the fringes of politics to the middle ground where most voters reside.”
(ClickPress, Apr 15) “In a democracy, the people are supposed to be sovereign. The New Party would put this concept into practice by giving each citizen shares in the nation. A nation, like a business, has assets and liabilities. As assets, it has land, property, gold, foreign currency, and revenue from taxation. As liabilities, it has to pay for roads, infrastructure, education, health, pensions, and bonds. The value of shares will vary with the economy. Shares would heal Great Britain’s two-tier society and give everyone a decent start in life.”
FROM THE ARCHIVES
Memoirs of Hadrian
Historical fiction, yet highly acclaimed by critics, The Memoirs of Hadrian was written in 1951 in French by Marguerite Yourcenar (the first woman elected to the French Academy). P 117, “I have put an end to the scandal of untilled fields neglected by great landowners too little concerned for the public good; any field not cultivated for five year’s time belongs hereafter to the farmer who proposes to put it to use… With this intention I myself took over the direction of the imperial domains; no one has the right to treat the earth so unproductively as the miser does his pot of gold.”
Crimes Against Nature
In this his latest book, 2004, Robert F. Kennedy, Jr (pp 190-197): “You show me a polluter and I’ll show you a subsidy. I’ll show you a fat cat using political clout to escape the discipline of the market and load his production costs onto the backs of the public. Taxpayers give away $65 billion every year in subsidies to big oil, and more than $35 billion a year in subsidies to western welfare cowboys. Those subsidies helped create the billionaires who financed the rightwing revolution on Capitol Hill and put Bush in the White House. While communism is the control of business by government, fascism is the control of government by business. True free-markets, in which businesses pay all the costs of bringing their products to market, is the most efficient and democratic way of distributing the goods of the land – and the surest way to eliminate pollution. Free markets, when allowed to function, value raw materials and encourage producers to eliminate waste by reducing, reusing, and recycling. I don’t think of myself as an environmentalist anymore; I consider myself a free-marketeer. John Winthrop, the Moses of the Puritan migration, said their mission was to build a ‘city on a hill’ – an example to the world of what nations can accomp-lish if we work together in community. Winthrop’s 1630 sermon – arguably the most important speech in Amer-ican history – called for his fellow citizens to steer away from the greed and power politics that had corrupted the old world. Winthrop’s words are often quoted by neoconservatives who invariably omit his warning against the temptation to elevate commercial values lest we ‘disappear into the lure of real estate.’”
The American Revelation
“Author and historian Neil Baldwin’s new book, The American Revelation: Ten Ideals That Shaped Our Country From the Puritans To The Cold War (St. Mart-in’s Press), offers his assessment of the key issues and concepts he feels make America a unique nation. Bald-win argues these are not only key ideals, but also uni-versal ones that are critical to any discussion about national values, irrespective of political viewpoint or personal background. Baldwin begins his book with John Winthrop’s 1630 speech ‘City On A Hill’ that outlined, among other things, what Winthrop considered a religious person’s obligation to society and the proper response from believers who considered the actions of their government immoral or indefensible. Baldwin covers Ralph Waldo Emerson’s ‘Self Reliance’ and Henry George’s ‘Progress and Poverty’, profiling a major philosopher and economist whose concepts proved central to the nation’s emerging ideals. The American Revelation is an incisive look at several key figures, neither omitting their flaws nor overstating their importance. Baldwin’s writing combines autobiographical detail, analysis, and reflection of their importance in the evolution of American values.” (Nashville City Paper, April 28)
America Beyond Capitalism
Subtitled “Reclaiming Our Wealth, Our Liberty, and Our Democracy” by Gar Alperovitz (2005), it catalogs in detail the problems of the country – income gap, time famine, sprawl, sexism, etc – and the response of American communities in dealing with them, which he dubs the Pluralist Commonwealth. Doing more of these cooperative projects, people can change the system. Yet more than list all the progress heartwarming to the left – nonprofits providing services and firms owned by workers and governments – he also moves beyond the left by acknowledging the disappearance of work, the possibility of shrinking the workweek, and the need for an income apart from labor. He still assumes political participation trumps economic justice – that making it possible for people to speak at endless meetings is a blessing – but that’s forgivable, since he also insists upon time off from work. It’s a wealth of information and well written. Gar is also one of five new contributors to my geonomics college textbook to be published by Elgar, Inc. Elgar editor, J.C.J.M. van den Bergh, (May 20): “Your list of style suggestions sounds very good even though ambitious. I must admit that you are a quite original thinker (that’s a compliment). I look very much forward to see your entire manuscript.”
Michael Hudson on savings
Harper’s April cover story on Bush raiding social security to forestall a slump was by Michael, a contributor to our forthcoming textbook. It had hard data. Our private retirement accounts total $10 trillion, with $4.7 trillion of that in stocks. All stocks equal $14.2 trillion (end of 2003, Federal Reserve). Americans have so little savings, spending so much to service debt. It left me curious. How much debt is for sites? How much are sites worth, a source of an extra income for all? By how much does the cost of living fall each year, minimizing the need for savings? Then Radio Canada interviewed Michael. “Compared to US Social Security, private pension plans covering tens of millions of workers are in much worse shape. Companies lobbied hard to avoid putting away the money. Government deregulation allowed companies to cut their pension contributions and inflate their growth estimates. Corporate accountants and executives made the unrealistic assumption that private-sector pension contributions could be invested to make at least 9.5% year after year, decade after decade. Lower deductions allowed companies to report higher earnings and pay out higher dividends to support their stock prices. United Airlines already has defaulted and companies in the steel and auto industries may follow suit. The U.S. government insures corporate pension plans, which have now racked up liabilities of about $450 billion. For Commentary, I’m Michael Hudson in New York. Hudson is an economics consultant who teaches economics at the University of Missouri in Kansas City. (cbc.ca/commentary, June 2)”
Global savings glut?
Former Princeton economist Ben Bernanke notes that global investors don’t have much choice. Taxes and rules are too stiff in Europe, in Latin America the law is lax and corruption rife. The Asian ethic favors saving over spending; governments run deficits to subsidize exports. So Americans find imports cheap, which creates jobs abroad. And foreigners find the American market receptive and US stocks and bonds secure. The French had $3.3 trillion stashed outside France in 2003. Japan invests only a quarter of its savings at home. Most of that outflow lands in America, pumping up stocks and the demand for bonds, lowering their rates. Low interest rates make mortgages attractive, so Americans don’t save but borrow, pumping up real estate, and spend, growing GDP but not employment. Thus Yanks shop lots and save little while foreigners shop little and save lots. (Newsweek, May 2) This offsetting worries people who assume political borders are economic borders. Yet the same surges and flows happen within nations, too. If the economy is to serve the people, the only rational response is to recover that pumped up value of locations and share it among citizens.
Fannie & Freddie fracas
Fannie and Freddie were created by Congress to buy mortgages and repackage them into securities for sale to investors. Spreading around the risk of low-income people defaulting was supposed to make it easier to lend to them. The two federal quasi-insurers also hold loans. In 1990, Fannie and Freddie had a combined portfolio of $132 billion, or 5.6% of the mortgage market. By 2003, they had $1.38 trillion, or 23% of the market. While greater size does generate higher profits, it also creates greater risk of imploding the market. However likely such an event is not known. Freddie Mac misstated earnings by $5 billion, which in 2003 forced out top officials. Last year Fannie Mae was forced to restate earnings back to 2001, which could amount to $11 billion. Signatures in ledgers had been falsified and some mortgages held-for-sale had been recorded as held-for-investment. (USA Today, May 6) To put more people into their own homes, what government could effectively do would be to recover site rents. That’d knock the land component out of the price of homes and spur owners who’re wasting buildable land to get cracking, augmenting the housing supply, which would also cut price. Then if there’s still any sound reason to bundle mortgages, let the market do it, keeping the size of any portfolio within acceptable risk.
Sign of coming crash?
The chief economist for MarketWatch, Dr. Irwin Kellner, is the Weller professor of economics at Hofstra University and chief economist for North Fork Bank. (CBS/MarketWatch, May 10): “If long-term rates don’t rise soon while the Fed keeps boosting short rates, the spread between short and long rates will narrow significantly. By the end of the year the yield curve could well be flat, setting off alarm bells about a possible recession in 2006.” Alan Greenspan, Chairman of the Federal Reserve, while addressing the major global bankers worried over falling long-term rates (CBS/Marketwatch, June 6). This is our third issue in a row where we’ve copied mainstream economists pointing to this signal of looming recession, so you too can watch the coming of the perfect storm. It’s not that high rates for short-term bonds or low rates for long-term bonds cause recessions or even catalyze them. They just reflect the mood of the investor who, when they see the tide going out, way out, need rather strong inducement to keep with the program.
Taxes cost us in many ways
Martin Feldstein, contributor to The Wall Street Journal, Professor of Economics at Harvard University, and President and CEO of the National Bureau of Economic Research, authored “Tax Avoidance and the Deadweight Loss of Income Taxes”, published in Review of Economics and Statistics, 1999 November. He concluded that income taxes have negative consequences. Previous estimates have stated that for every dollar raised in tax revenue, there is an efficiency loss of 2.5%. However, these previous estimates did not consider the effect of tax rates on tax avoidance; that is, engaging in legal non-taxable behavior such as accepting health benefits instead of salary, taking more leisure time, and being less productive. As tax rates rise, tax avoidance becomes more severe. He estimated that the loss in efficiency from current income taxes is more than 30%. If Social Security taxes are included, it’s 50%. Raising the income tax 10% increase, while raising revenue by $21 billion, would reduce efficiency by $44 billion. These conditions are aggravated by the progressive tax structure of the U.S. tax code.
How the rich rule
“That the wealth of the majority of people fits a curve that describes the energies of atoms in a gas (March 12, p 6) is no mystery. The underlying reason for this skew was explained in 1879 by the economist Henry George, who showed it was caused by the conditions of land tenure. One way to understand what is happening is to imagine three people playing a game of Monopoly. When all the properties have been bought, a fourth player joins the game. He will inevitably be subject to unfair terms as, wherever he lands on the board, he has to pay rent to one of the other players. This is an accurate model of a key aspect of real economies. Those who do not own land have no option but to work for wages, which will be driven down to a minimum.” (New Scientist, April 9)
The history of monopoly
What became known as MONOPOLY was originally The Landlord’s Game, a 40-space board game patented in 1904 by Elizabeth J. Magie. A Quaker, she advocated a fair distribution of wealth, following the popular social reformer Henry George. Her game included a starting point, labeled “Mother Earth,” railroads, utilities, and a “Go to Jail” square. Players traveled clockwise along a square path, and real estate was offered for sale or rent. By 1910 the game was being played by members of an experimental community in Arden DE that adopted George’s idea that all men have equal right to land and that it is unfair for some to grow wealthy as land increases in value. In 1924, Elizabeth Magie Phillips (then married) got a second patent for her game. She shifted the goal from bankrupting the opposition to endowing contestants by rescuing ‘poor’ players. In 1929, Ruth Hoskins, also a Quaker, became a teacher at the Friends School in Atlantic City. She tailored the board, using Atlantic City street names, including those on which players in her circle lived. Two Atlantic City players introduced Philadelphia hotelier Charles E. Todd to the game. A clever acquaintance, Charles B. Darrow, obtained the copyright for the Atlantic City-flavored version in 1933. Darrow gave the plain game board the color it has today. In 1934, he pitched Monopoly to Parker Brothers without luck. After he peddled it for a year successfully, Darrow and Parker Brothers reached a deal. Parker Brothers also purchased Magie Phillips’ patent. Since then, MONOPOLY has sold more than 750 million sets in 80 countries and has been produced in 26 languages. (Newark Star-Ledger via Mark Monson)
Good tax, oxymoron?
David W Burdick, Mt Hood CC (March 08): “’Fed’s Chief Gives Consumption Tax Cautious Backing.’ An interesting idea, which has potential to develop sustainable economics. What are your thoughts?”
Editor: A consumption tax is not much help for people who have to spend every penny they get and barely save a thing, if that, so it’s not too fair. As for efficiency, it will raise prices of everything, even green goods and services, unless you exempt them; and if you do that, you raise the cost of bureaucracy. I’d junk it, most other taxes, and transform the tax stool. Instead of taxing sales/consumption/business, charge for extrac-tion/depletion of natural resources. Instead of taxing wages/income, charge for polluting/fouling the environ-ment. And instead of taxing buildings/improvements, charge for exclusive use of locations (land “ownership” used to include “owership”). Thinking taxation lets people ignore those profits without production (“rents”), when we should recover society’s surplus and share it.
Educating elected officials
My fact-filled inquiries elicited interest from major players in Oregon including: Rep. Mark Hass (D), Rep. Kim Thatcher (R), Oregon’s Chief Economist Paul War-ner, Lane County Commissioner and Gubernatorial can-didate Pete Sorenson (D), Portland Development Com-mission Director Don Mazziotti, Oregon League of Con-servation Voters Legislative Affairs Director Jessica Ham-ilton. Prudential Northwest Properties Broker Erik Blender (April 8): “I work with ‘Realtors Building Com-munity’. We support a Real Estate Transfer Fee. I also support Site Value Taxation versus standard property taxation. I would like to attend the Senate Roundtable to lend my support. How can I best contribute?”
In the media
April 25, The Communitarian Network (Amitai Etizoni’s e-newsletter), Feedback to #65 on immigration, printed a dozen responses, including ours. April 29 in Dublin Ireland, Research and Markets announced the addition of Critical Issues in Environmental Taxation: International and Comparative Perspectives (Volume II) to their offering. The announcement lists and the book includes my article, “Public Policy! Front and Center! Can Eco-Taxes Counter Subsidies?” The US Society for Ecological Economics’ Newsletter announced our spring issue and our textbook project. The Georgist Journal, spring, reprinted liberally from the spring Geonomist.
On the podium
March 4-6 in New York city at the annual of the Eastern Economics Association, among 80 others within the track of the Basic Income Guarantee Network (their 4th Congress), moderated once (on monetary reform: new credit as a common asset) and presented twice to fairly well attended workshops (about 20 participants on “A Polynesian Play Ethic Yields a Unique Indicator: Leisure” and on “Aspen’s Housing Assistance: local application of sharing rent”). April 12 at Mt Hood CC, presented “Tools for influencing governance of Ecological and Economic sustainability” with the head of Oregon’s Progress Board, Jeff Tryons. May 24 spoke again at Mt Hood CC, during lunch hour (after dining as a guest). May 26 at Portland’s Village Building Convergence, to which hundreds of idealists flock from all over the country to volunteer to help construct public amenities such as gardens and saunas, a dozen came to my concurrent workshop for an hour and a half. At all, disseminated scores of this newsletter.
Pat Kane, spokesman, author of a book on the Play Ethic (Mar 21): “I’d very much like to know more about your paper presented to this year’s Basic Income conference, ‘A Polynesian Play Ethic Yields a Unique Indicator: Leisure’. I am becoming ever more aware of my insufficient consideration of ecological concerns. Can you send me your paper?” Ed: Sure. Anyone else?
Bill Grennon, New Hampshire activist and husband (March 23): “I spoke to a native woman working in Hawaiian Bank today and told her about your Polynesian Play Ethic vs. the Protestant Work Ethic talk at the BIG. She really liked it! You give me hope and I draw strength from your vision and convictions, Jeff!!!”
Richard Reids, director, Oregon Annexation (Mar 23): “You’ve probably thought about linking Site-Value Taxation with the Citizens Dividend. I believe it would be possible to get some broad based support for the dividend and use the real estate industry’s subsidy as an example of how we’re robbed of our dividend by all the subsidy we provide.”
Ron Amos, Congressional candidate, to the Democratic Freedom Caucus list (May 7): “[Mutual friend] Hanno, thanks for answering. So many individuals ‘own’ their own homes that SVT would be a hard sell, but maybe a way can be discovered to make that re-education take place much faster. I am constantly looking for ways to make change easy; Citizens Dividend would help do that. I think I can make a political case for Citizens Dividend and infrastructure costs coming out of land rent.”
Paul Justus, Arkansas planner busy updating their region’s long range transportation plan (May 21): “As part of our re-framing, have people thought of using the term ‘Natural Rent’ as opposed to ‘Land Rent’? There is something primordial about the sacredness of Land that people think they would be sacrificing by allowing their land rent to be fully taxed. Of course, in reality, Geonomics ensures that one will have access to the land. I believe the Citizen’s Dividend is key to implementing a program of Geonomics.”
Dick Strong, California soil scientist (May 7): “I’ve been carrying your spring Geonomist in my van. I really like the newsletter. I’m on a month long research trip to the Chihuahua Desert in Mexico and New Mexico. I found 24 ejidos – hospitable, civic pride, sense of community. Drought is reducing plant growth. Fields are being abandoned, towns becoming ghost towns. My story is at soilandhealth.org. My immediate problem is my fuel pump quit. I close with a poem.” Ed: Which was quite touching, BTW.
Newcomers, old stayers
The European sponsors of a May conference, including UN Habitat, granted me a subsidy of 200 Euro. The Robert Schalkenbach Foundation made it possible for me to follow up with contacts made at conferences abroad, which is quite time-consuming, and to disseminate newsletters at the annual conference of the Eastern Economics Association, which granted me permission to place a stack on their own info table. Our 2005 spring Geonomist elicited enough renewals and newals from stalwarts Wendell Fitzgerald, Kathy Rentenbach (OR activist), sustainer Heather Remoff (PA anthropologist), Mark Sullivan (NY leader), supporter Dick Strong (CA agronomist), subscribers Mason Gaffney (UC Riverside prof), Jason Murhphy (MO prof), Gib Halverson (WI firefighter), Rich Nymoen (MN leader), Don Levor (NY retiree), and Nadine Stoner (WI leader), and others to cover the costs of copying and postage. 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.
WHERE FROM HERE?
June 26 – 29, the Community Development Society holds their 2005 conference at the Radisson Plaza Lord Baltimore Hotel in Maryland. My roundtable is under Policy and Practice. July 20-23, the US Society for Ecological Economics holds its 3rd Biennial Conference in the Tacoma Convention Center in Washington. It has our panel on Rents: Bill Barnes, U of Portland on “Rent Lock-In in the Energy Industry; Michael Mascall, PhD, former chair of the Sierra Club of BC Chapter, on BC Forest Subsidies; myself on “Who Gets Rent Determines How Green Your Economy”; and Karl Seeley, Hartwick College, on “Beggar Thy Neighbor: Doing Well By Doing Bad”. We’ll also engage policymakers in a nuts-n-bolts workshop. June 24-26, Anniversary Gathering of the School of Living (schoolofliving.org). Speakers include Alanna Hartzok, Paul Justus for the Ozark Regional Land Trust, and others on many topics such as Geoism. Register at s-o-l.org/images/GatheringFlyer. doc. This September, The American Monetary Institute is hosting a conference in Chicago (monetary.org). More info, contact Stephen Zarlenga (email@example.com).
What you can do: report
Econ Journal Watch is a scholarly online journal that exposes irrelevant and wrong-minded articles in the academic economics journals. Close associate Fred Foldvary is an associate editor of the journal and has an article on “geo-rent” at: www.econjournalwatch.org/main/ index.php?view_issue=1&categories_id=6. If you read any article in the mainstream economics literature that you find irritatingly bad, feel free to send Fred an article critical of it. They welcome your input.
What else you can do, II
Richard, Green Party, (Apr 11): “I agree with geonomics. How do we get from where we are to where we want to be?”
Editor: Look at other movements that dealt not with a single issue but with shifting the paradigm, such as the environment or gender equality or racial equality. How’d they do it? All had in the beginning a bestseller, like Silent Spring or Female Eunuch or Uncle Tom’s Cabin. The book not only got the word out, it also crystallized a worldview and a simple reform. So: (1) Compose the Message, which highlights the basic problem, like: “Letting a few take what we all make – the value of land – is stressing both nature and society.” (2) Define the Mission, which sums up a solution in a way that resonates with a critical mass and captures society’s momentum, perhaps: “Rather than tax and subsidize, share Earth by sharing her worth.” (3), Recruit Members, more people to refine, articulate, and spread the word. That means in our mass market, (4) Media exposure. Today, that’s not so much a book as it is a computer game, since it’s the young who shift paradigms, not the entrenched (Kuhn says). And (5), raise Money. While every course taught on history leaves it out, nothing happens without money.
What else you can do, III
Kate Thomsen, Portland State grad student: “Your taxing ideas are fantastic. I had not heard about geonomics. I’m curious about your background and how you make a living in a culture that does not exactly reward thinking outside of the standard economic box. I have trouble answering this question myself.”
Wendell Fitzgerald, retiree from California to Oregon (Apr 26): “I will be sending you a donation to be on your regular mailing list.” Editor: It arrived. Thanks.
Anyone else? Where society jumped the track is at rent, its own surplus, overlooking all the money people spend on the nature they use. Win geonomics, so sharing society’s surplus is the norm, thereby making the world work right for everyone. Merry Solstice.
I bet your local government has budget and tax problems. If our local economy is like a bucket, there’s a leak in that bucket — and we all suffer as a result. Everett W. Gross describes the leak in the bucket, and suggests a fair, gradual way to fix it.
by Everett W. Gross
Who has not joined the fray about Nebraska’s budget and tax problems? The same is going on in your state, wherever you live. Advice includes cutting programs or curtailing waste or raising (someone else’s) taxes. The many proposals cover a lot of territory but leave a great big gap. That gap is a proposal to study how to wake up the entire economy and get much needed revenue from the increased business.
But that study would need to consider how the economy functions and what if anything, might be holding it back. So let me take a shot at it. When you buy anything, for instance food, approximately two-thirds of the price you pay is already taxes. However, only one of those thirds is a collection of hidden taxes called by the name of taxes. It includes all of the taxes including income taxes paid by all of the employees and managers who had any hand in producing and delivering and keeping books and furnishing buildings and factories involved in the article that you buy. That third of your price goes to the various branches of government. Yes, you do pay all of the income taxes of all of the people who produce what you buy; if you didn’t, they would not survive.
So much for one third of the price of the item. The second third is also a tax but does not go by that name. It. may go by different names but you pay it for permission to occupy the earth. Whose permission, you ask? Every crop, every factory or store building, every employee’s residence had to occupy a location that had to be paid for. That location price is over and above any goodies that any owner may have supplied or any taxes he may have paid on it. That location price is not paid to the person who created the location. Geology created the location. What made it valuable? The nearless to the school, the road, the police and fire station, the other businesses and factories and homes.
Then does this second third of your price go to pay for these schools and roads and police and fire protection, etc? No, it does not, but think about it a little while. Shouldn’t it? But all of those amenities are paid out of that first third which I mentioned above. Are those two “thirds” exactly the same size? Maybe not, but experts disagree on which is larger.
So the portion of your price, about another third, not mentioned above is all that is left to reward, (that is, hire and pay) everyone who had any hand whatsoever in producing the article that you bought; yes, even that bookkeeper and the merchant who sold the ink to print the label on that can of beans. Why should you pay two thirds of your price for taxes when the government gets only half of that to pay for all of the public costs? And a noticeable fraction of the public cost is for building and maintaining utility lines and roads past empty and underdeveloped lots held idle for speculation. The speculator expects the sale price to rise if and when other people establish businesses and homes around it. He is seldom disappointed.
What. can be done about it? First, get the speculative bare lots on the tax rolls at an assessed value and levy high enough to induce the holder to sell or use the lot. But do it. gradually, as any significant change should be done. Watch the other investment opportunities open up all over town. Second, start reducing taxes on the property improvements and watch still more investments open up. Any speculator or improver who objects to that is shooting himself in the foot and doesn’t know it.
Then why don’t we do it that way? Why is something simple so hard to tell? All I can guess is that each person we try to explain it to is afraid to stop long enough to look into an idea that is not already commonly known and accepted by most other people. You have heard of so many things that did not work. This idea is being tested in Pennsylvania and other places. It works.
Stay tuned. This one article cannot explain it all.
What exactly is going to happen as the world tries to shift away from its dependence on petroleum?
It seems we must run out of oil — and not a minute too soon, if there is any chance of stopping harmful climate change. While oil is not the lifeblood of industrial economies, energy is. Machines don’t care if their power comes from fossil fuel or chicken manure — but the ecosystem does.
To hasten and ease the transition to alternative energy sources, we could use geonomics. That is, we’d collect the annual rental value of oil, of all natural resources, even of surface land — trillions of dollars each year — use the proceeds to pay ourselves a dividend a la Alaska’s but heftier, and meanwhile quit taxing our efforts and quit subsidizing social services (albeit corporate welfare is not exactly a true ‘service’). Geonomics — replacing taxes with land dues, and replacing government subsidies with Rent dividends for all — lets industrial economies cure themselves of their addiction to oil both economically and politically.
First, the elimination of subsidies. Since fossil fuel industries win more subsidies, like syn-fuel research funds, than do the various solar/wind powers, zero subsidies totals a far bigger loss to the entrenched ways. Advantage, alternatives.
Government’s failure to defend our right to a healthy environment constitutes a subsidy to those industries that now pollute the environment. Make government dependent on Rent (all the money we spend on the nature we use), and government will take a stronger interest in protecting the source of its revenue — nature. Redirect Rent from oil companies and their brethren to the public treasury, and those firms won’t have the political clout to circumvent the law; government would make polluters pay. Conversely, the solar powers, which do not pollute, would not have any extra charges to pay. Advantage, alternatives.
Second, the elimination of taxes. Since fossil fuels dodge more taxes with gimmicks like the oil depletion allowance than do the various solar/wind powers, zero taxes will mean a bigger saving for the new technologies, more burdened by taxes on wages. Advantage, alternatives.
Third, the presence of land dues. With the public recovery of Rent, oil companies would pay society each year to claim oil fields. Owners of oil fields would not hoard any easy oil in accessible wells but use that first and would sell off any fields that they are not using or not using efficiently. Losing these unearned billions of Rents, oil companies would lose their unholy hold over politicians and policies. Since most alternatives — geothermal, wave, wind, photovoltaic, etc — occupy sites of lower value and consume very few resources, they’d pay little or no Rent. Advantage, alternatives.
Fourth, the presence of dividends. Paying out recovered Rent as a Citizens Dividend would democratize investment dollars, so newly endowed oil workers and penny investors could form their own companies and co-operatives. They’d have the wherewithal to buy, and the land dues for oil fields would urge present owners to sell, thereby helping break up giant oil companies into smaller firms, perhaps one per field. Smaller, they’d have less political power and in competition, they’d keep supply up and price reasonable even as untapped reserves dwindle. Meanwhile the solar technologies, not exactly awash in cash, would benefit from every extra dollar coming their way via the Citizens Dividend. Advantage, alternatives.
Together, all four of these fiscal shifts mean fossil fuels become less profitable, losing that artificial advantage over alternative energy sources. On this new level playing field, the older entrenched industries — minus those cost-plus government contracts, etc, while paying higher land dues — would drive investment dollars away; at the same time, the newer cleaner technologies of unchartered potential would attract investors’ money, regardless of their political views, simply because the new bottom line would be better. Redirecting this huge flow of funds would speed up the pace of techno-progress in energy production.
Besides bringing more oil to market while leveling the playing field for the alternatives, geonomics also reduces demand for oil as petrol for private cars, meaning there’d be less oil usage for alternative sources to replace.
First, land dues motivate landowners to use their sites, not to speculate or procrastinate, so they in-fill cities, which reduces parking and provides more riders for mass transit, bicycles, and walking shoes.
Second, Rent dividends let people shrink their workweek and spread out rush hour, which is when most oil gets burned. If a transit system need not serve a huge peak load twice a day, it need not have a huge fleet that sits idle for long stretches or usually moves around almost empty.
No matter how many buses and light rail carriages would be needed, they do use heavier motors. Alternative power plants will be able to furnish these sooner in their development cycle (miniaturization takes more time to work out), so more demand for bigger vehicles grants them greater opportunity to take the field.
Thus geonomics — sharing Earth’s worth while axing taxes on efforts — would both reduce demand for oil and expand the supply of alternatives.
Copyright 2004 by Jeffery J. Smith. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Jeffery J. Smith and The Progress Report. Also see
a way to connect the dots. Making the cyber rounds is “The Cavernous Divide” by Scott Klinger, from AlterNet (posted March 21): “As the number of billionaires in the world expands, so does the number of those in poverty.” Duh. The yawning income gap is not news. Nearly every issue of our quarterly digest carries a similar quote. Yet the connection was worked out long ago by one of America’s greatest thinkers, Henry George, who labeled his masterpiece, Progress and Poverty. Techno- and socio-advances always enrich few and impoverish many. Yet progress also pushes up location values – the geonomic insight (is Silicon Valley cheaper now or more expensive?). Instead of taxing income, sales, or buildings, society could collect those values of sites, resources, EM spectrum, and ecosystem services via fees and dues, which would lower the income ceiling, and instead of lavishing corporate welfare, pay out the recovered revenue via dividends, which would jack up the income floor. Dots connected.
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 heritage 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 dividend, as Tom Paine suggested, and taxes (except any on natural rents) could be abolished, as Thomas Jefferson suggested. Were we sharing Earth by sharing her worth, territorial disputes would be fewer, less intense, and more resolvable.
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.
shaped by reality. In the 1980′s, the Swedish government doubled its stock transfer tax. Tax receipts, however, rose only 15%, since traders simply fled to London exchanges. Fearing a further exodus, the Swedish government quickly rescinded the tax altogether. (The New York Times, April 20) That willingness to tax anything leads us astray. Pushing us astray is that unwillingness to pay what we owe: rent for land, our common heritage. Assuming land value is up for grabs, we speculate. We cap the property tax on both land and buildings and the rate at which assessments can go up; while real market values rise quicker, assessments can never catch up. Our stewards, the Bureau of Land Management, routinely sell and lease sites below market value, often to insiders, says the Government Accounting Office. Once we grasp that rent is ours to share, we’ll collect it all, rather than let it enrich a few, and quit taxing earnings, which do belong to the individual earner. That shift is geonomic policy.
one of many words I coined over 20 years ago: geoism, geonomics, geonomy, geocracy, etc – neologisms that later others came up with, too. CNBC once had a Geonomics Show, and Middlebury College has a Geonomics Institute. If “economy” is literally “management of the household”, then geonomy is “management of the planet”. The kind of management I had in mind is not what CNBC was thinking – top-down. My geonomics is not hands-on, interfering, but hands-off, organic. It’d strive to align policy with natural processes, similar to what holistic healing does in medicine, what organic farming does in agriculture. Geonomics attends to two key components: One, the crucial stuff to track is fat – or profit, especially profits without production, such as rent, or all the money we spend on the nature we use. Society’s surplus is the sine qua non for growth, needed to counter death – not merely more, but sustainable development, more from less. Two, the basic process to respect is the feedback loop. These let nature maintain balance automatically and could do the same for markets, if we let them. Letting them would turn our economies, now our masters, into a geonomy, our servant, providing us with prosperity, eco-librium (to coin a term) and leisure, time off – a hostile environment for economan but a cradle for a loving and creative humanity.
close to the policy of the Garden Cities in England. Founded by Ebenezer Howard over a century ago, residents own the land in common and run the town as a business. Letchworth, the oldest of the model towns, serves residents grandly from bucketfuls of collected land rent (as does the Canadian Province of Alberta from oil royalty). A geonomic town would pay the rent to residents, letting them freely choose personalized services, and also ax taxes. Both geonomics and Howard were inspired by American proto-geonomist Henry George. The movement launched by Howard today in the UK advances the shift of taxes from buildings to locations. A recent report from the Town and Country Planning Association proposes this Property Tax Shift and their journal published research in the potential of land value taxation by Tony Vickers (Vol. 69, Part 5, 2000). (Thanks to James Robertson)
a new policy from a new perspective. Once your worldview shifts — so that vacant city lots are no longer invisible — then epiphany. “Of course! Why didn’t I see it before?” Once you do see the emptiness and what damage it does, how can you ever go back to the old paradigm?
a study of a phenomenon David Ricardo noted going on two centuries ago. When wine grapes rise to $10,000 a ton from the very best land (last year, cabernet sauvignon commanded an average of $4,021 a ton in the Napa Valley), then vineyard prices soar from $18,000 an acre in the 1980′s to $100,000 an acre five years ago and now for a top pedigree up to $300,000 an acre (The New York Times, April 9, via Wyn Achenbaum). Pricey land does not make wine pricey; spendy wine makes land spendy. While vintners make their wine tasty, nature and society in general – not any lone owner – make land desireable. Steve Kerch of CBS’s MarketWatch (April 5) notes that much of what a home sells for on the open market is a reflection of intangible factors such as what school district the house sits in. The price the builder has to pay for the land also tends to be driven by the same intangibles. Because the value of land comes from society, and because one’s use excludes the rest of society, each user owes all others compensation, and is owed compensation by everyone else. Sharing land’s value, instead of taxing one’s efforts, is the policy of 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.
a discipline that, compared to economics, is as obscure as Warren Buffett’s investment strategy, compared to conventional investment theory, about which Buffett said, “You couldn’t advance in a finance department in this country unless you taught that the world was flat.” (The New York Times, Oct 29). The writer wondered, “But why? If it works, why don’t more investors use it?”
Good question. Geonomics works, too. Every place that has used it has prospered while conserving resources. Yet it remains off the radar of many wanna-be reformers. Gradually, tho’, that’s changing. More are becoming aware of what geonomics studies – all the money we spend on the nature we use. Geonomics (1) as an alternative worldview to the anthropocentric, sees human economies as part of the embracing ecosystem with natural feedback loops seeking balance in both systems. (2) As an alternative to worker vs. investor, it sees our need for sites and resources making those who own land into landlords. (3)As an alternative to economics, it tracks the trillions of “rent” as it drives the “housing” bubble and all other indicators. And (4) as an alternative to left or right, it suggests we not tax ourselves then subsidize our favorites but recover and share society’s surplus, paying in land dues and getting back “rent” dividends, a la Alaska’s oil dividend. Letting rent go to the wrong pockets wreaks havoc, while redirecting it to everyone would solve our economic ills and the ills downstream from them.
People must learn to stop whining so much and feel enough self-esteem to demand a fair share of rent, society’s surplus, the commonwealth.
I am not a full devotee of Henry George but there is no one in the social world that I read with more intense interest.
John Kenneth Galbraith, Letter of October 30, 1998
When we seek to discover the best in others, we somehow bring out the best in ourselves.
William Arthur Ward
Experience hath shewn, that even under the best forms of government those entrusted with power have, in time, and by slow operations, perverted it into tyranny.
It is a miracle that curiosity survives formal education.
Always do right. This will gratify some people and astonish the rest.
Knowing is not enough; we must apply. Willing is not enough; we must do.
Johann Wolfgang von Goethe
The world hates change, yet it is the only thing that has brought progress.
The equal right of all men and women to the use of land is as clear as their equal right to breathe the air. It is a right proclaimed by the fact of their existence. For we cannot suppose that some men and women have a right to be in this world and others do not.
Curiosity is one of the permanent and certain characteristics of a vigorous mind.
You may be disappointed if you fail, but you are doomed if you don’t try.