We are Hanno Beck, Lindy Davies, Fred Foldvary, Mike O'Mara, Jeff Smith, and assorted volunteers, all dedicated to bringing you the news and views that make a difference in our species struggle to win justice, prosperity, and eco-librium.
This 2014 excerpt of Thom’s Blog, Sep 3, is by Thom Hartmann.
The Texas Parks and Wildlife Foundation recently purchased twenty-seven square miles of wetlands along the Texas coastline using about $38 million dollars from BP’s fines for the 2010 BP Deepwater Horizon catastrophe.
That purchase will protect the salt marshes, oak forests, and pristine wetlands of Texas’s coastline, and it will provide a buffer for storm surge and sea level rise that pose a threat to that state. The Wildlife Foundation had been trying to purchase the land for over three decades, but was unable to raise the funding until BP was forced to pay.
It was only the massive scale of the BP spill that prompted large fines and settlements.
By forcing Big Oil to pay for their disasters, we raise the cost of business for the fossil fuel industry, and force them to do more to prevent another disaster.
But we shouldn’t wait until the next disaster to make Big Oil pay up. Let’s make them pay in advance for the destruction they cause. It’s so important to prevent corporations from privatizing gains and socializing costs.
Ed. Notes: Good point that (1) fines are not enough. But not just oil companies but anybody who alters nature for profit should first pay (2) an Ecology Security Deposit (like how we pay deposits before leasing an apartment) and buy (3) Restoration Insurance (like how we buy car insurance before driving on public roads). Further, polluters should buy (4) permits to emit byproducts that can cause harm, just like a promoter must buy a permit to stage a loud concert. These four charges alone would make oil extraction, indeed most industry, not profitable, according to the UN.
Yet most fundamentally, the most powerful charge that society could oblige land users to pay are Land Dues or land taxes. The amount would be the annual rental value of the location. Because market-rate rents tally much more than fines, deposits, premiums, or permits, the Land Dues (or taxes) that collect the rents would have much more impact. The main change is that resource extractors would abandon marginal site, sparing much nature, and concentrate on prime sites, getting more from less.
While recovering the socially-generated values of sites and resources, government could quit levying counterproductive taxes on our earnings, purchases, and buildings. While society has a valid claim to the worth of Earth — something everyone has a right to and its value is something society as a whole generates — it’s hard to craft a moral argument for those taxes that punish our efforts.
Along reforming taking, government could reform spending, and quit paying corporate welfare while instead disbursing a dividend to the citizenry.
To top it all off, we could go back to the days before government limited the liability of businessmen for free or a pittance and instead requrie them to negotiate contracts with suppliers, investors, workers, etc. Then we solve not just our environmental problems and our economic ones at the same time. Called geonomics, it has worked wherever tried.
This 2014 excerpt of the New York Times, Aug 31, is by Felicity Barringeraug.
In a drought as long and severe as California’s current one, excessive withdrawals of groundwater means that land sinks, old wells go dry, and saltwater invades coastal aquifers. Water levels in dozens of wells are at historic lows, making new wells more expensive.
The California Legislature, in its closing hours on Friday, passed new and sweeping groundwater controls that Gov. Jerry Brown is expected to sign, making California the last Southwestern state with to establish groundwater controls. The measures do not eliminate private ownership, but they do establish a framework for managing withdrawals through local agencies.
Not just farmers, but cities like Fresno rely heavily on groundwater supplies. In an average year, 39 percent of the water consumed in California comes from the ground. In areas with little surface water, like the central coast from Carmel to Santa Barbara, groundwater makes up 80 percent of supplies on average.
In the third year of a drought, an estimated 60 percent of the water for agriculture comes from underground.
A few farmers pump to sell high-priced water to others. Farmers in Merced County made a $46 million, four-year deal to sell nearly 100,000 acre-feet — an acre-foot is enough to supply at least two houses for a year, or to cover an acre of land one foot deep — to buyers in the neighboring county. The deal was challenged and has been scaled back.
House prices in the UK are too high. Too high compared to historical averages, too high relative to rents and too high relative to incomes.
Says who? Certainly not estate agents, mortgage lenders or surveyors.
Yet the IMF said the UK house price to income ratio was 30 per cent above its long-term average; only in France, New Zealand, Australia, Canada and Belgium was the discrepancy higher. Relative to rents, the margin was even wider at 40 per cent.
The OECD, the think-tank for developed economies, made a similar point. The European Commission also warned earlier this year of the “macroeconomic imbalances” in the UK economy, many of which are linked to housing.
Engineering a lasting “soft landing” in the housing market – a moderation of price growth, but not an outright crash – is easier said than done.
Reform property taxation
The political cowardice of successive governments means it is levied on values not properly assessed in living memory.
A progressive tax on property values (or land values; in practice most of a property’s value is the land) would have several beneficial effects. It would make the property market work more smoothly and efficiently by removing the distortions caused by stamp duty, it would redistribute from the property rich to the property poor and – if levied at an appropriate rate – it would help dampen excessive price rises.
Over the last 40 years the UK housing market has transferred huge amounts of wealth from the young and poor to the middle-aged and well-off, especially in London. A fairer and more efficient tax, one that would raise as least as much as stamp duty and council tax combined, could begin to reverse that trend.
Jonathan Portes is director of the National Institute of Economic and Social Research
This 2014 excerpt of Web of Debt, Spt 1, by Ellen Brown.
The September/October issue of Foreign Affairs [published by a think tank funded with oil rents by the Rockefellers and which guides US Foreign policy] features an article by Mark Blyth and Eric Lonergan titled “Print Less But Transfer More: Why Central Banks Should Give Money Directly To The People.”
The Fed’s Zero Interest Rate Policy (ZIRP) favors the banks that borrow the money and put it in interest-bearing Federal Reserve accounts or buy foreign debt or speculate with it; and the profits go back to the 1%, who park it offshore to avoid taxes. Worse, any increase in the money supply from increased borrowing increases the overall debt burden and compounding finance costs, which are already a major constraint on economic growth.
All else having failed, it is reduced to trying what money reformers have been advocating for decades — get money into the pockets of the people who actually spend it on goods and services.
The Fed is “independent.” At least, it is independent of government. It marches to the drum of Wall Street. It is basically a dictatorship. The Fed did not ask permission before it advanced $85 billion to buy an 80% equity stake in an insurance company (AIG), or issued over $24 trillion in very-low-interest credit to bail out the banks, or issued trillions of dollars in those glorified “open market operations” called quantitative easing.
It’s probable that they don’t actually have the legal right to do anything like this.
Ed. Notes: While everyone should get money for nothing, not just the rich, should it come out of thin air? Doing it that way ignores the huge surplus that already exists and is being captured by the 1%. What is society’s surplus? It is all our spending for all the nature we use: land, resources, EM spectrums, both directly for those assets and indirectly, embedded in the price of all the goods and services we buy.
It’s trillions of dollars every year and by overlooking it, we allow the theft of our common wealth to continue, to erect an elite that can take away our savings and houses just as well as pay us something freshly printed and minted. Trying to print money rather than confront the theft from our commons strikes me as a bit sneaky and not exactly brave anyway. Yes, there is a free lunch — or at least cheap abundance — and it is not new money but spent money, spent on things not made by labor.
And fundamentally, the scheme misunderstands the purpose of money, which is to make possible an accounting system of our values, reflected in prices, which are constantly inflating while my pay is not. I’d like to know where Ellen shops (she seems to be a very decent person), but in my grocery store food keeps getting less and less affordable. We should no more tamper with honest money than we should constantly change, say, the number of days in the week. That said, people should still be getting an extra income, but it should come from the source that is now enriching only a handful of us, and that is the worth of Earth.
This 2014 excerpt of the Straits Times, Aug 30, is by John Wong.
Many of the government’s anti-corruption and anti-extravagance measures, as official travel, official dinners, and other perks for officials, have reduced domestic consumption. “Witch-hunt” fear in the bureaucracy has lead to inaction of government officials and a political paralysis that has, in turn, stalled the implementation of projects and even resulted in cutbacks on domestic investment, particularly at the local government level. All these have put a rising toll on the economy, which is already slowing down in growth.
Eventually, lower corruption would lower transaction costs and ultimately raise economic efficiency.
It was premier Wen’s huge stimulus package of four trillion yuan (S$813 billion) to shore up economic growth during the global financial crisis in 2008 that really opened the floodgates to massive corruption and rent-seeking activities. Many gigantic infrastructure projects were hastily launched, and many local governments went into uneconomical ventures in collusion with property developers. In some localities, it was an economic “Wild West”.
China’s corruption was mostly in rent-seeking activities involving property development, which did not directly affect industrial production and exports in the real economy.
Current Premier Xi’s crackdown on corrupt officials is by itself an indirect official admission that the party and all its related apparatus had all along been extensively corrupt. Such a revelation only undermines the image of the party and the credibility of the government.
His relentless pursuit of high-level culprits or “tigers” could rock the basic power structure by upsetting its existing factional balance and undermining the unity of the party.
Corruption is politically harmful because it corrodes the whole political structure and its bureaucracy. It is socially harmful because it aggravates inequality of income and wealth.
Governments world-wide are erecting towers of debt so high that they will, a decade from now, come crashing down in the next great financial crisis. The debt problem was featured in a Cato Policy Report of May/June 2014, a review of the book, The Government Debt Iceberg.
The report states that “current generations have been consuming at the expense of future generations.” That is true in a financial sense, but not from an economic perspective. Today’s consumption comes from today’s production. We cannot today consume the future’s output. However, we do today live at the expense of the future in the excessive consumption of natural resources, such as the fish in the sea, and also in spoiling the natural environment. But that is a different topic from the government-debt problem.
The main problem with government debt is that promises are being made to the poor and the elderly, which cannot be kept. The present value of the funds promised to pay for medical care and retirement income are seven times greater than the present value of funds expected from taxation. There are various estimates of these unfunded liabilities, but for the USA they are in the order of $120 trillion dollars, seven times the amount of the official debt of 17 trillion dollars.
Today, the credit of the United States is still good. For the next several years, the USA will be able to borrow funds, but as the explicit debt becomes ever greater, US treasury bonds will no longer be regarded as safe from risk. The debt service will grow as a risk premium is added to the interest rate paid by the Treasury.
In The Government Debt Iceberg, published by the Institute of Economic Affairs, Jagadeesh Gokhale calculates that to close the fiscal gap, an extra nine percent of GDP in tax revenues would have to be levied each year. That would require more than doubling federal payroll taxes if the entitlement funds continue to come from that source. The debts of Europe and Japan are even worse. Gokhale proposes to have governments publish the real economic debt, forward-looking measurements that include all unfunded liabilities, so that the debt is no longer an iceberg, mostly hidden beneath the surface appearance.
There are four possible solutions to the towers of debt. The first and best is rapid growth, so that the ratio of national income to deficits rises. The only possible way to induce high economic growth is with an efficiency tax shift – replace market-hampering taxes with market-enhancing levies on pollution and land value, plus voluntary user fees.
The second alternative to avoid the catastrophic crash of government liabilities is to greatly reduce the obligations. But cutting medical and retirement benefits would create economic hardship and be politically infeasible. Governments will most likely reduce the growth of future liabilities by raising the eligibility ages, reducing the growth of benefits, and increasing co-payments. But that will still leave a large economic debt.
The third alternative is to greatly increase current tax rates, but that option would stifle growth and make workers even more dependent on entitlements. The fourth alternative is high inflation, which would reduce the value of the explicit debt, but if social security and medicare are indexed to inflation, that would not solve the problem of keeping the promises.
The only way to avoid economic catastrophe is to raise the income of workers by eliminating taxes on wages and goods, and using the economic surplus that is land rent to finance government. Workers would then be able to afford to pay for their own expenses. Unfortunately, neither the Cato review nor the IEA book even mention this efficiency tax shift.
Much of the funding for policy institutes derives from the profits of the landed interests, and that influences policy positions. These organizations believe in free markets, but are constrained by their lack of the ability to study the subsidies to land values. So we have to rely on geoist or Georgist organizations and scholars to analyze and publicize the most effective solutions. The world is stuck in poverty and debt, because the landed interests prevent the exposure of their subsidies.
The advocates of geoism or Georgism, the concept, promoted most prominently by Henry George, of equal rights to land rent, thus using land rent for public revenue and personal dividends, are a union of egalitarian advocates for justice, and individualist advocates for liberty. They hold the keys to the resolution of economic woes and political conflicts, but they are but a small remnant of today’s progressive movements. Therefore the most effective solution to the debt will not even be discussed in the major media, and we will, once again as in 2008, be pushed by the currents of the river of deficits, towards an even greater financial waterfall.
This 2014 excerpt of Open Secrets, Aug 28, by Robert Maguire.
Social welfare organizations which claim educating or informing the public as a part of their mission aren’t supposed to have politics as their primary purpose and aren’t required to disclose their donors. Political spending by these groups is reaching new heights: This week, it crested $50 million, a record for this point in an election cycle, and more than seven times beyond the outlays by such groups at this time in the last midterms.
And that’s just the amount that has been reported to the Federal Election Commission, which doesn’t include tens of millions more spent on “issue ads” that aired earlier in the cycle and didn’t have to be reported to the agency.
Lying in the name of “educating voters” isn’t new. Ads by such groups contain glaring mistakes, according to independent fact checkers. Well-funded nonprofits run ads outside the reporting window – often making false or misleading claims about a candidate. Then, months later, they run ads advocating openly for the candidate’s defeat, often recycling the same false or misleading claims.
Based on spending in previous cycles, 2014 dark money is projected to set a new record. If the rate of spending from previous cycles continues, the totals could reach upwards of $730 million or — if the rate seen in the last midterm holds — edge close to $1 billion.
And despite the boom in liberal spending, these groups still don’t compare to their conservative counterparts.
Ed. Notes: Wouldn’t it be great to live in a nation where lying to the public is illegal? If only!
That aside, even if conservatives were not allowed to spend so much, or if liberals were able to spend more, how much difference would that make? Liberals would be able to influence more people but as long as they spout the same message, they will still fail to reach a huge segment of the population. Since the use of money in politics is not shrinking but expanding, liberals might want to rethink their message.
Find the words that no matter how much money is spent resonates with a majority. Just as grammarians have not been able to stop the spread of “like”, conservatives would be unable to stop the acceptance of economic justice if liberals could express it effectively, as well as the last five words of the Pledge Allegiance: “with liberty and justice for all.”
This 2014 excerpt of Sightline Daily, Aug 27, is by Jerrell Whitehead.
By raising the cost of land speculation, a land-value tax (LVT) would create clear financial incentives to develop underutilized properties near the urban core—helping to create new homes and businesses in the very places where demand is greatest.
But there’s a significant obstacle to implementing LVT in Washington: the State constitution. “All taxes shall be uniform upon the same class of property…” Would this requirement for “uniform” taxation make taxing land, not improvements, unconstitutional?
According to The Washington State Constitution: A Reference Guide, “Virtually every substantive word in Section I has been litigated.” Would state courts define the land-value tax as a permissible excise tax or special assessment? The answer may lie with the skill of lawyers drafting such a tax, and with the temperament of the judges considering a challenge, and if the legal and political forces align.
Ed. Notes: States have other charges that evade their constitutions, such as quid pro quo fees (as for parking). The deed fee can be raised and made annual or monthly. A periodic Displacement Fee could be created, charging owners for displacing everyone else and every other usage but their own.
Even better, the captured land rents could be kept out of the general fund and not be made available to politicians but instead enter a trust fund and be used only for disbursing to citizens. That’d make the charge a non-tax. The payment could be a straight dividend that the recipient could spend it anyway they like a la Alaska’s oil share or Singapore’s land dividend, or it could be a housing voucher good for renting, leasing, buying outright, mortgages, a la Aspen CO’s housing assistance, or making improvements.
Whatever form the fee, it must first be passed into law, which naturally requires political support. Support for asking landowners to hand over all their “housing equity” — actually, potential land rents — to politicians has not been fanatically forthcoming (quite the opposite). A better strategy than trying to pass an unpopular tax is to pass a popular dividend that happens to need a fee to fund it.
This 2014 excerpt of PBS News Hour, Aug 27, is by Peter Barnes.
In his new book, “With Liberty and Dividends For All: How to Save Our Middle Class When Jobs Don’t Pay Enough,” Barnes argues for a national dividends program like Alaska’s oil share that could distribute to all Americans as much as $5,000 per year in legitimate property income.
Creating millions of new jobs in a globalized, automated economy is hard. Workers are expendable — often they’re literally “temps” — and their benefits are shrinking. In unionized industries like autos and airlines, two-tier contracts are now the norm. This means that younger workers get paid substantially less than older ones for doing the same work. In the Labor Department’s latest list of occupations with the greatest projected job growth, only one out of six pays over $60,000 a year.
Fortunately, labor income doesn’t exhaust our possibilities. Since 1980, the flow of non-labor income has grown to around a third of every dollar Americans receive. From where might we all get some non-labor income?
We could pay equal dividends to all from wealth we own together. It is predistribution; it allocates income more fairly in the first place so there’s less need to redistribute later.
Dividends could come from a nationwide fund similar to the Alaska Permanent Fund, which, since 1982, has used the state’s oil wealth to pay equal yearly dividends to all Alaskans. Dividends wouldn’t come from taking people’s already-received income; they’d come from fees paid by businesses for value received. A bill recently introduced by Rep. Chris Van Hollen, D-M.D., would generate money for dividends by auctioning a steadily declining number of carbon permits.
Over time, according to my calculations, such dividends could grow to about $5,000 per person per year.
Dividends from common wealth unite society by putting all its members in the same boat. The income everyone receives is a right, not a handout. This changes the story, the psychology, and the politics.
Ed. Notes: That’s so cool to see a word I coined in print: predistribution. Another is Citizen’s Dividend. One more is geonomics.
Since kids don’t have accounts and don’t contribute much to the creation of common wealth — the worth of Earth, our spending for land, resources, EM spectrum, etc — paying registered voters a share of this spending stream would raise the dividend to $1k per month.
That extra income could be coupled with much lower counterproductive taxes on earnings, purchases, and buildings. The public treasury won’t lose a penny as long as government recovers the socially-generated value of locations, which goes up when taxes on our efforts go down.
Such tax reform could also be coupled with spending reform, spelling the end of corporate welfare and bridges to nowhere (speaking of Alaska) and lots of other waste.
What’s needed is for regular people to feel enough self-esteem to demand a fair share of what’s already ours just like the rich feel when winning an enormous share of what’s not theirs. We’re not broke. There is a surplus. It just needs to be shared. People need to quit demanding jobs and start demanding justice.
This 2014 excerpt of The Guardian, Aug 18, is by Warwick Smith.
Who benefits from the privatisation of public assets? The buyer. Such assets will only be purchased if they stand to make a return. However, the biggest winners when multiple asset sales are considered are the banks. Privatised assets are almost always bought with borrowed money. So, while individual companies or consortia might benefit from the purchase of a government asset, it’s the banks and other lenders who benefit from a culture of privatisation.
The strategy generally employed by the buyer of public assets is to privatise the profits and shift costs onto the public. It is the public who are ultimately paying the interest; either through a lower sale price of the asset, through the increased cost of the services, or through reduced services.
Understand that these companies’ first interest is not in the efficient and effective supply of service. They just want profit. If they can most easily maximise profits by being good providers of a service that’s what they’ll do but it’s easier to exploit loopholes in regulations. It’s very difficult to write regulations that are watertight when it comes to these sorts of asset sales.
There are plenty of sound ways to fund infrastructure, but land taxes are the best and also the least likely to be used. Taxes that capture uplift in land values (sometimes called betterment taxes) can be effectively used to recoup spending on a lot of public infrastructure. For well prioritised projects, this uplift in land value is well in excess of the cost of the infrastructure.
If we could have fantastic public transport in our major cities that pays for itself, why aren’t we already doing it? There are three major hurdles to implementing greater use of land taxes: the banks, the real estate industry and property investors. The first two are very powerful political lobby groups and very generous political donors, and the last is quite a large voting bloc.
That the banks are the principal beneficiaries of ever-climbing housing prices is yet another largely overlooked fact. The more banks can lend people to buy houses, the more expensive real estate gets, the more money banks get to lend and the more profit they make. It’s a beautiful self-perpetuating gravy train.
Politicians feign concern about housing affordability and how hard it is for first home buyers to get into the market but they don’t enact any of the policy measures that we know would improve affordability for fear of upsetting the financial industry, the real estate industry and all the “mum and dad” property investors who’ve been lured into real estate by distortionary government policies like negative gearing and concessional treatment of capital gains (both of which are effectively corporate welfare for the banks).
Ed. Notes: Joseph Stiglitz, who used to be the chief economist for the World Bank, put his simple fact into a formula (every worthy project can pay for itself with new land values) that he called the Henry George Theorem.
This 2014 excerpt of Guardian Liberty Voice, Aug 26, is by Laura Oneale.
Julius Malema was recently placed under sequestration and the court extended the date of the sequestration hearing to December 2014. In the meantime, Malema must start paying back taxes to the South African Revenue Services (SARS).
Malema said tax laws are not known to black people, including African National Congress (ANC) party members and most ordinary citizens. It was all new and people were still adjusting to comply with the tax laws.
Malema said that the over one million people that voted for the Economic Freedom Fighters (EFF) party were aware of his tax issues.
Malema went on to say that if all the MP’s had to produce a tax clearance certificate from SARS many would fail.
Earlier in the month, Malema said that if a person had land they had everything. While attending a church meeting in Bloemfontein, Malema said the demand for land would start today. Land reform without compensation is a top priority for Malema and throughout the election campaign he told supporters of his intention to implement the return of land to blacks within South Africa.
Not long ago, while addressing a group of Zionist activists, Malema said, “We will take back our land as you did your Israel.” Many Jewish activists including Joe Slovo played a pivotal part during the apartheid struggle to democracy.
Malema remained adamant about the wealth of the country benefiting all the people and reiterated his stance on the nationalization of mines and banks.
Ed. Notes: Because politicians and bureaucrats may be no better than the private owners of banks and mine, consider alternative to nationalization — and to reclaiming land now owned by others.
Government can tax land or charge a user fee or a deed fee or institute land dues, not just for land where people live or work, but also fields and pastures, and mines. Negotiate a lease with the owner that sets terms high enough to recover all the rent, which is the annual value of the location itself, not of any work or building or improvement done to it. Anyone who owns more land than they can use won’t find it any longer worthwhile to hang on to it, just be be a middleman, and will let it go at a low price to previous tenants, as happened in California, Australia, Taiwan, and elsewhere.
As for banking, government can let savers open accounts in the public treasury and use those funds to lend to worthy borrowers. Yet people won’t need to borrow so much if government pays them a dividend from all those recovered rents. This way, money won’t be syphoned off by the privileged few, the economy will grow — as it did in the places noted above — Malema’s party truly will be Economic Freedom Fighters.
This 2014 excerpt of Clawback, Aug 21, by Quinntavious Williams.
The California legislature recently awarded special corporate tax breaks worth more than $420 million each to two of the country’s largest military contractors. The state also boosted the pot of money available for film tax credits from $100 million to $400 million. And it may put up a substantial amount to try to win the contest for the huge battery plant planned by Tesla.
The first of the weapons megadeals went to Lockheed Martin in connection with its role as a major subcontractor for Boeing on a $55 billion contract the Air Force will award for next-generation stealth bombers.
When the legislature approved the subsidy deal in July, Northrop Grumman, the only known competitor for the bomber contract, cried foul play because the tax break gave Lockheed an unfair advantage. To appease the company the legislature passed a similar subsidy bill for Northrop last week that was then signed by Gov. Jerry Brown.
Lockheed has received $134,349,564 in subsidies in 18 states. Northrop Grumman has received $499,567,863 in subsidies in 9 different states. Northrop’s most recent subsidy is a $471 million package from Florida.
With calls for cuts in the military budget coming from both the left and the right, the future of the new stealth bomber program is anything but certain. If the program goes on the chopping block, California will have nothing to show for its new embrace of megadeals.
Ed. Notes: This is how the real world works. People with so much money they don’t need anymore have so much power they can still take what’s not theirs and almost everyone treats it as normal. But the well-connected insiders feeding at the public trough is why either your taxes are too high, or do not return enough service, or both.
It’s also why people invest in weaponeers, since government shields them from market pressures, instead of into useful new ideas like solar power or rapid mass transit.
If you want to put a stop to such wasteful favoritism, you have to put a stop to government subsidies in general. Make government become a good steward and do hardly anything more than recover our common wealth and disburse the funds equitably to us all.
What’s our common wealth, the source of our dividend? It’s the value of land and resources. It’s all our spending for locations and natural goods like oil and timber. Those natural assets have a rental value (apart from their downstream value to consumers).
It’s that rental value we should be sharing — not taxed income or sales or buildings. Weaponeers, too, would get their share, but no more than anyone else.
The economy’s “infrastructure” consists of capital goods which are used for transportation, communications, and utilities. These capital goods are also called “public works,” because they have characteristics of public goods. An non-congested road or bus can accommodate extra users without reducing the services of the current users. The infrastructure of utilities includes the pipes, pumps, and wires that provide water, electricity, and natural gas. Some of the infrastructure is considered a natural monopoly, a product with a high fixed cost and a low marginal cost, the cost of providing more of the product.
Much of the infrastructure of the United States was built decades ago. These capital goods are mostly owned by governments which have failed to provide proper maintenance. The recent assessment of infrastructure by the American Society of Civil Engineers calculated an overall grade of D+.
Capital goods tend to depreciate, and require maintenance. Privately owned capital goods, such as houses and cars, are typically well maintained, since the owner wants to continue using these, and seeks a high resale value. But in the mass democracy we have today, the political incentive to build infrastructure but then to avoid spending to maintain it properly. A politician can take credit for promoting and voting for a project such as mass transit, but he will not boast about providing the on-going maintenance, as this does not provide a news opportunity.
Several major bridges have collapsed in recent years, and some have been shut down after being inspected. Bridges built decades ago now have many times the traffic they were initially built for, and the officials responsible for the bridges have failed to provide proper upgrades. Governments find the funds to repair broken bridges, but can’t provide the political will to maintain and upgrade them so that they don’t break. (A significant exception is the replacement for the San Francisco – Oakland Bay bridge.)
The federal government’s budget for highways comes from the Highway Trust Fund, financed by the federal gasoline tax. This is a unit tax, based on gallons rather than price, and the rate of 18.4 cents per gallon has been unchanged since 1993, while inflation has reduced the real amount. But the problem is not so much the rate, but the tax itself.
A gasoline tax seems like a user fee, since the use of roads is proportional to the use of gasoline. But the tax per gallon of gasoline has little relationship to the costs and benefits of the road. The benefit of a road can be measured by how much extra people are willing to pay to use locations served by the road, i.e. the additional land rent generated by the road. If the road generates less rent than it costs, it should not be built.
The best way to pay for a road and its bridge is from the land rent that gets generated by that infrastructure. There is then no need for a gasoline tax. However, the cost of a road or street is not just the cost of construction and maintenance. There are two other social costs. First is the cost of congestion. Streets and highways world wide are crowded, which wastes time. There should be tolls on all streets, highways, and bridges which vary by time and day, with tolls just high enough to prevent congestion. Another social cost is the pollution from vehicles. The efficient way to reduce pollution to an optimal amount is to measure the emissions with remote sensing, and then send pollution charges to the owners of vehicles which exceed the limits.
Many condominiums and residential associations have a reserve fund for periodic maintenance. The association’s budget includes an annual payment to the reserve fund as an actual expense that offsets depreciation. Government should do likewise. The government responsible for particular infrastructure should included in its budget an operational expense or reserve fund for the upkeep of the capital goods.
The political incentive, however, is the opposite. Politicians will not get publicity for maintenance and reserve funds. Therefore the upkeep funds should be a constitutional requirement. It should be in the constitutions of all governments that whenever public works are built, the budget will include payments for adequate maintenance.
The same economics applies to other infrastructure, such as water provision. The water provision of many American cities is over a hundred years old. Maintenance should be a constitutional requirement. In July 29, 2014, a water pipe burst in Los Angeles by the University of California. Millions of gallons of water were wasted in the midst of an extreme drought. The cost of not doing maintenance is much greater than that of proper periodic upkeep.
An alternative to government-provided infrastructure is provision by the private sector. Private communities such as homeowners’ associations would provide the local streets, and they would federate to provide the larger highways. Assessments, ideally on land value, would pay for the local public goods and also be passed on for the larger infrastructure. Property owners who balk at taxes willingly pay association assessments, so perhaps that is the most feasible path of reform.
This 2014 excerpt of Demos, Aug 20, is by Matt Bruenig.
One of the main reasons rich people buy up apartments in NYC (that they do not then live in) is for speculative investment reasons. They are hoping to increase their wealth by flipping the apartment in the future after the price of it has climbed up and up. If you can attack these speculative returns, you can blow up this entire game.
The easiest and most comprehensive way to attack these speculative returns is not a tax on unoccupied apartments. It is a complete tax on speculative housing returns, which is what taxing land rents would entail.
The price of an apartment roughly consists of two things: the value of the physical structure and the value of the location. Since the value of the physical structure does not generally increase over time (unless it is changed in some way), it is only an increase in the value of the location that causes apartment values in NYC to increase. Speculators are not banking on on the value of the aging physical structure of the apartment going up. They are banking on the value of the location going up.
You can tax the annual rental value of the land at very high rates (ideally 100%). This would operate just like a property tax, except it would be assessed only on the land value.
Under such a land value tax regime, any increase in the rental value of the land is entirely captured by an identical increase in the land tax assessed to the owner. This means that when owners go to sell their apartments to a new buyer, that buyer will not be willing to pay the owner more money for it.
Ed. Notes: The reason locations in NYC cost so much is because so many people live there and want to live there. It is the presence of community that creates the value of location. That is why — along with the fact nobody created land — it is fair for the community to recover this value that it creates.
And conversely, it is unfair to tax buildings, businesses, and earnings, things that individuals do create.
If you got rid of all the unfair and counterproductive taxes and replaced them with land dues and the like, plus if you got rid of spending programs which benefit insiders more than the public and replaced them with a Citizen’s Dividend, you’d have geonomics in practice and all the benefits that go with it.
This 2014 excerpt of Bloomberg Businessweek, Aug 14, is by John Tozzi.
In 2008 there were 1.7 million children born to unmarried women in the U.S. The rate of unwed births, at 52 newborns per 1,000 unmarried women, had been climbing steadily since 2002 and was the highest ever recorded.
After 2008, births to unmarried women declined each year. The steepest declines in childbearing have been recorded among unmarried black and Hispanic women, narrowing the gap with whites.
2009 is when MTV aired its reality show, 16 and Pregnant, followed by a slew of Teen Mom spinoffs. The narratives of hard lives of young mothers prompted Google searches and tweets about birth control or abortion. The show accounted for as much as one-third of the overall drop in teen births in the year and a half after its debut.
A hit TV show dwarfs the influence of pretty much all the public policy that could affect teen birth rates. Changes to welfare, Medicaid coverage for contraception, sex ed or abstinence curriculums, access to abortion -— none of it really moves the needle.
Teens, in particular, are staying childless by using contraception and having less sex, not by an increased reliance on abortion. Since the 1990s, women have been delaying childbirth. The pattern is evident in other developed nations as well.
There’s still plenty of room for unwed birth rates to decline, particularly among populations with the least economic opportunities. The proportion of births to low-educated women that are outside of marriage remains staggeringly high.
Ed. Notes: Our sex drive is pretty strong, as is our territorial imperative. Yet if a TV show can sway people to make rational choices about sex, perhaps another one can help people make rational choices about occupying land. Imagine: tune it, pay land dues, and share land rent!
in part the Great Green Tax Shift maxed out. Economically, taxing pollution and depletion does reduce pollutants and extracts – and thus the tax base; plus such taxes are regressive, requiring a safety net. On the other hand, collecting site rent is progressive and generates a revenue surplus payable as a dividend to residents, which can serve as the safety net. Environmentally, taxes on waste and extraction do not drive efficient use of land, as does getting site rent.
a POV that Spain’s president might try. A few blocks from my room in Madrid at a book fair to promote literacy, Sr Zapatero, while giving autographs and high fives to kids, said books are very expensive and he’d see about getting the value added tax on them cut down to zero. (El Pais, June 4; see, politicians can grasp geo-logic.) But why do we raise the cost of any useful product? Why not tax useless products? Even more basic: is being better than a costly tax good enough? Our favorite replacement for any tax is no tax: instead, run government like a business and charge full market value for the permits it issues, such as everything from corporate charters to emission allowances to resource leases. These pieces of paper are immensely valuable, yet now our steward, the state, gives them away for nearly free, absolutely free in some cases. Government is sitting on its own assets and needs merely to cash in by doing what any rational entity in the economy does – negotiate the best deal. Then with this profit, rather than fund more waste, pay the stakeholders, we citizenry, a dividend. Thereby geonomics gets rid of two huge problems. It replaces taxes with full-value fees and replaces subsidies for special interests with a Citizens Dividend for people in general. Neither left nor right, this reform is what both nature lovers and liberty lovers need to promote, right now.
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.
more transformation than reform; it’s a step ahead. Harvard economics students this year did petition to change the curriculum, in the wake of the English who caught the dissension from across The Channel. French reformers, who fault conventional economics for conjuring mathematical models of little empirical relevance and being closed to critical and reflective thought, reject this “autism” – or detachment from reality – and dub their offering “post-autistic economics”. Not a bad name, but again, academics define themselves by what they’re not, not by what they are, unlike geonomists. We track rent – the money we spend on the nature we use – and watch it pull all the other economic indicators in its wake. We see economies as part of the ecosystem, similarly following natural patterns and able to self-regulate more so than allowed, once we quit distorting prices. To align people and planet, we’d replace taxes and subsidies with recovering and sharing rents.
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.
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.
about the money we spend on the nature we use. It flows torrentially yet invisibly, often submerged in the price of housing, food, fuel, and everything else. Flowing from the many to the few, natural rent distorts prices and rewards unjust and unsustainable choices. Redirected via dues and dividends to flow from each to all, “rent” payments would level the playing field and empower neighbors to shrink their workweek and expand their horizons. Modeled on nature’s feedback loops, earlier proposals to redirect rent found favor with Paine, Tolstoy, and Einstein. Wherever tried, to the degree tried, redirecting rent worked. One of today’s versions, the green tax shift, spreads out of Europe. Another, the Property Tax Shift, activists can win at the local level, building a world that works right for everyone.
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.
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.