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The Best, Brightest, and Least Productive? Are too many people choosing careers in finance – and, more specifically, in trading, speculating, and other allegedly “unproductive” activities?
This 2013 excerpt of Project Syndicate, Spt 20, is by Robert J. Shiller of Yale University, co-creator of the Case-Shiller Index of US house prices, and author of Irrational Exuberance.
In the United States, 7.4% of total compensation of employees in 2012 went to people working in finance and insurance. The share is even higher among the most educated and accomplished people, whose activities may be economically and socially useless, if not harmful.
In 2006, just before the financial crisis, 25% of graduating seniors at Harvard University, 24% at Yale, and a whopping 46% at Princeton were starting their careers in financial services. Those percentages have fallen somewhat since, but this might be only a temporary effect of the crisis.
From 1950 to 2006, credit intermediation (lending, including traditional banking) declined relative to “other finance” (including securities, commodities, venture capital, private equity, hedge funds, trusts, and other investment activities like investment banking). Moreover, wages in “other finance” skyrocketed relative to those in credit intermediation.
A significant amount of speculation and deal-making is pure rent-seeking — wasteful activity that achieves nothing more than enabling the collection of rents on items that might otherwise be free. Those in “other finance” often engage in such behavior.
Ed. Notes: You can rake in a lot of money without any more effort than flashing a winning smile if the money you rake in was already saved up by somebody else, somebody who trusts that you know what you’re doing when it comes to investing and have their best interests at heart. But taking a slice of the money that other people already earned and set aside is not the same thing as growing the pie, increasing output of goods and services, and making more money available for everybody. Growing the pie does benefit society in general while just shifting existing money around only creates winners and losers. But note which attracts more job-seekers. What sort of values must they have?
Bigger picture, how important would saving and investing and speculating be in a just economy? In a just economy, all the techno-progress going on would slash the cost of living. So to be comfy, you would not have to make as much money or save as much. As prices for goods and services drop, fall, and keep withering away, the surplus you saved up would go further and further.
What would stop inflation so the underlying deflation could come to the surface. Honest money — no more new money issued than new goods and services produced. To get bankers and politicians to quit devaluing the currency, you might have to allow consensual currencies to compete with them, such as community currencies on the left and gold-backed notes on the right. As more people switch to the currency they prefer, the bankers and politicians would have to rein in their profligate lending and spending just to keep people using their notes and coins.
Digging deeper still, of course it’d help to gather up all the “rents” — all the money that society spends for the nature and privileges it uses — and route them thru the public treasury and back out again as a Citizen’s Dividend. That’d leave no piles of money lying around for the spendthrift to use as collateral and none to lure the materialistic into socially useless careers. But they’d be getting a CD, too, so maybe they could learn to love the beauty in life.
Life could be so much simpler and fair with implemented geonomics.
This 2013 excerpt of the UK’s Telegraph, Nov 27, is by Ambrose Evans-Pritchard.
American scientists have made an unsettling discovery. Crop farming across the Prairies since the late 19th Century has caused a collapse of the soil microbia that holds the ecosystem together. The soils currently found throughout the region bear little resemblance to their pre-agricultural state.
There has never before been a metagenomic analysis of this kind and on this scale. Professor Fierer said “soil microbes play a key role and we can’t just keep adding fertilizers.”
Academics from South Africa’s Witwatersrand University fear that we are repeating the mistakes of past civilisations, over-exploiting the land until it goes beyond the point of no return, and leads to a vicious circle of famine, and then social disintegration.
Entitled “Dust to Dust”, the paper said 1pc of global land is being degraded each year, defined as a 70pc loss of the top soil.
Once the top soil crosses a crucial threshold, the recovery rate plunges. Chemicals can keep crop yields high for a while but the complex ecology beneath is being abused further. Yields have already fallen 8pc across Africa as a whole.
This comes as China and emerging Asia switch to an animal protein diet, replicating the pattern seen in Japan and Korea as they became rich. As a rule of thumb it takes 4kg-8kg of grains in animal feed to produce 1kg of meat.
The East side of Magdascar has been destroyed by slash and burn deforestation, perhaps irreversbily in any human time horizon. Iceland’s Norse settlers turned their green and partly forested island into a Nordic desert in the 10th Century. They have yet to restore the fragile soil a thousand years later, despite careful husbandry.
The Sumerian civilisation that first pioneered cereal farming in the Tigris and Euphrates was almost certainly destroyed by soil erosion and over-cultivation. The Gilgamesh epic describes tracts of cedar forest in Iraq before it was cut down for the timber trade around 2,600 BC.
The story is usually the same, whether for the lowland Maya central America, or the Khmer Empire of Angkor, or Easter Island, recounted by Jared Diamond in “Collapse”. Once the hillside trees are cut down, water flows are disturbed. It seems that a climate shock is the often the coup de grace, pushing them over the edge.
There have been counter-episodes. Yacouba Sawadogo, “the man who stopped the desert”, began to revive the ancient zai technique to stop soil erosion on his little farm in Burkina Faso. It involved digging smal holes and filling them with compost and tree seeds to catch the seasonal rains, recreating a woodland of 20 hectares in the arid Sahel. Then local officials expropriated the land.
Ed. Notes: Factory farmers — people pasting chemicals onto global soil — must know they’re doing something wrong, otherwise they would not demand limited liability. Perhaps government should get out of the business of limiting the liability of people doing damage merely to amplify their profit. While at it, government could also quit its corporate welfare that feeds the giantism in business, as do subsidies to agri-business. Instead, government could use surplus public revenue (from the recovered value of land and resources) to fund a dividend to the citizenry. Shrink down the size of polluters, and raise up the size of citizens, and then it becomes a lot easier to win these political battles.
This 2013 excerpt of Atlantic Cities, Spt 11, is by Emily Badger.
The city council in the California city of Richmond, pop. 105,000 with a Green Party mayor, narrowly voted to become the only municipality in the US to seriously consider using eminent domain to seize underwater mortgages from the investors who currently hold them. The city would not seize the properties themselves – as more typically happens in eminent domain cases – but would use the power to essentially purchase the mortgages at their current market value (against the wishes of the banks that hold them).
The median price of homes in town has dropped to less than half of what it was at the height of the housing boom. And the city has estimated that about 51 percent of its homeowners are underwater. Richmond’s unemployment and poverty rates are high.
Richmond CA would ultimately sell the restructured mortgages to new investors at rates that would keep the current residents in their homes.
Every other local government that’s been tempted by this idea has ultimately abandoned it in the face of growing pressure from the banking industry, realtor groups, and even the federal government.
Banks and the securities industry have threatened that no one will give credit to cities that show they’re willing to seize property like this. And the Federal Housing Finance Agency has said it may take legal action against cities that try the tactic and stop lending to would-be homeowners who live there.
Ed. Notes: If the city does stand up to the realtors, bankers, and politicians, it can still win, if it turns Richmond into a highly desirable place. That the city can do by making itself into an enterprise zone. And that any city can do by de-taxing buildings, sales, and earnings. Instead, the city would recover the value of locations. It would charge rent to landowners (a tax or fee or dues, etc). To pay the charge, owners would develop their land and the city would prosper. Everybody wants to do business in a prosperous city, even realtors and bankers who had been angry opponents.
A “canon” is a set of items which are regarded by the chiefs of a field to be the accepted elements of the domain. Every religion, for example, has a canon of accepted ideas and documents such as the established books of the Bible. Every scientific field has a canon of propositions and facts accepted as genuine by the experts and by those in authority such as editors of the major journals and most members of the departments of the prominent universities.
The canon of economics consists of the propositions, methods, and historical facts accepted as true and applicable by most scholarly economists. This canon appears in textbooks and in the articles of the prominent journals. The ideas and methods outside the canon are referred to as heterodox economics, in contrast to the mainstream or orthodox canon. There have been articles and organizations about the mainstream and alternative canons, but they have not laid out what the canons consist of. Here is my attempt.
The canon of orthodox neoclassical economics consists of 1) supply and demand; 2) graphical curves of equal utility, inputs, and output; 3) marginal analysis (additional amounts of utility, inputs, outputs); 4) the factors or input variables of capital goods and labor; 5) the price level; 6) equations of production and utility; 7) the government-influenced money supply and the market-based velocity of the circulation of money; 8) economic and accounting profit; 9) market failure and government corrections; 10) equilibrium; 11) maximizing and minimizing within constraints; 12) the premises of subjective values, self-interest, scarcity, unlimited desires, and the uncertainty of the future; 13) the “time preference” for present day good relative to future goods; 14) the trade-off between goods and leisure; 15) the trade-off between equity and efficiency; 16) diminishing marginal utility; 17) diminishing marginal products; 18) theory from mathematical models; 19) econometric testing of hypotheses; 20) the producer and consumer surplus.
Neoclassical economics is divided into several sub-schools for macroeconomic theory. The major schools and their canons are:
1) Keynesian or demand-side economics, with the canons of the consumption function, spending multiplier, and the determination of output from autonomous spending and the multiplier.
2) The Monetarist school, its canon being the equation of exchange: Money times velocity equals the price level times real output, hence monetary inflation generally causes price inflation.
3) The New Classical school with its canon of rational expectations, which makes inflationary policy ineffective.
4) The New Keynesian school with its canon of wages, prices, and interest rates stuck above equilibrium; it accepts New-Classical rational expectations but claims that contracts and other rigid conditions make expansionary policy effective in increasing output.
The heterodox Austrian economic school of thought accepts these elements of neoclassical economics:1, 3, 4, 7, 8, 12, 13, 14, 15, 16, 17, 20. Austrians reject the excessive emphasis on 6, 9, 10, 11, 18, 19. The canons of the Austrian school that have not been absorbed into the mainstream are: 1) the time and interest-based structure of capital goods; 2) market dynamics rather than equilibrium; 3) dispersed knowledge; 4) discrete marginal utility based on diminishing importance; 4) axiomatic-deductive theory (praxeology); 5) entrepreneurship as both discovery and creative reconstruction; 6) free-market money and banking; 7) roundabout production; 8) the market as spontaneous order; 9) the failure of government intervention; 10) the evenly rotating economy that illustrates the role of entrepreneurship in the real world of uncertainty and change.
The Marxist school canon includes 1) class struggle, 2) the labor theory of value; 3) the surplus from labor taken by the capitalists who dominate labor; 4) benefits from socializing wealth.
The Georgist or geo-classical school has these canons: 1) land and its rent as major elements of the economy; 2) the margin of production as the least productive land in use; 3) land speculation and the movement of the margin raising rent and reducing wages; 4) the creation of land rentals from public goods; 5) depressions resulting from land-value bubbles; 6) economic effects of replacing market-hampering market-hampering taxes and subsidies with land-value taxation; 7) the surplus as land rent; 8) the ethics of labor and land; 9) harmony between equity and efficiency, and 10) the social behavioral effects of economic justice.
There is also a school of thought called “public choice,” which has been accepted by neoclassical economics as well as by other schools, as a side branch. Its canon includes: 1) self-interest in politics; 2) the rational ignorance of voters; 3) transfer-seeking and getting due to concentrated interests and spread-out costs; 4) vote trading by representatives; 5) bureaucrats maximizing their power and comfort; 6) the primacy of the median voter; 7) constitutional versus operational choice; 8) clubs that provide collective goods to their members.
The classical economics canon, before it turned neoclassical, included these elements: 1) Say’s law, that production pays factors that enable effective demand; 2) the division of labor; 3) economic growth from unhampered production and free trade; 4) the margin of production as the least productive land in use; 5) population growth pushing the margin to less productive land; 6) the three factors of production as land, labor, and capital goods.
A problem in economics today is that each canon excludes the useful elements of other schools. Economics needs a universalist canon that integrates the best elements from all schools of thought. However, economists disagree on what the canon should be. In my judgment, the most glaring omission in the mainstream canon is the neglect of the Austrian-school time-structure of capital goods, its neglect of the creation of land rent by public goods, and its neglect of the benefits of a prosperity tax shift, the replacement of market-hampering taxes with market-enhancing payments of land rent and pollution charges.
These 2013 excerpts on public revenue progress are from the UK press:
(1) The Guardian, Spt 13, on alternatives by Phillip Inman, economics correspondent;
(2) Express and Star or the Shropshire Star, Spt 14, and
(3) The Telegraph, Spt 15, on GB Business Secretary, by Tim Ross and Patrick Hennessy;
(4) Property Week, Spt 16, on LibDems by Rhiannon Bury;
(5) Financial Times, perhaps the world’s foremost business publication, Spt 27, on the perfect tax by Merryn Somerset Webb, editor-in-chief of MoneyWeek;
(6) Tax Research, Spt 30, on a joint letter by Richard Murphy;
(7) Financial Times, again, Nov 22, on the old can saving the young by Chris Cook; and
(8) ResPublica, undated but probably late Nov, on solving housing woes by David Fagleman.
Alternative to Council Tax Freeze is Out There
We are repeatedly suckered by the easy riches to be gained from joining the property pyramid scheme at an early stage. We need a brake on the investment bloodlust that overtakes buyers and sellers when house price inflation gets going. A property boom is about persuading the next generation of buyers to pay inflated prices in the expectation they will become super-creditworthy borrowers.
A tax on land, subsuming council tax, would force us all to pay a little of the inflationary gain each year from rising land prices in the form of a tax. In most land tax schemes, the money is used to reduce income tax and transaction taxes like stamp duty. This means the only losers would be those people who rely on rental income and rising prices for their standard of living.
A land tax promotes many good things. To limit property inflation we would all be in favour of new building. It would also encourage investment in more productive assets, like start-up companies, manufacturing businesses and export-led services firms.
Vince Cable, the UK Business Secretary, said the Government should look at plans for a land value tax.
Vince Cable said there were many potential problems with the idea, which taxes land itself rather than the property or people on it — but told a fringe event at the Liberal Democrat Party Conference the idea should be examined.
He said it was one of the options “floating around at quite a high level”.
How a Levy Based on Location Values could be the Perfect Tax
What gives a piece of land its value? Why is a 500 sq ft spot in London worth more than 500 acres of land in Angus? The value of a bit of land is not in the land itself but in the location of that land. And what gives the location value? That comes down to what is going on around it. Think good transport links, good schools (a house in the UK by a good school is worth anything from 5 to 20 per cent more than one near a bad school), hospitals, and the infrastructure to provide jobs.
If it is the state that gives land some of its value — clearly there is also value in non-state provided things, such as beauty and mineral rights — why is it that all of that value generally accrues to individual landowners, rather than to the state?
A land or location value tax (LVT) is levied not on the value of a property but on the value of the land that property sits on. It is not the bricks and mortar that make a flat in, for example, London’s One Hyde Park worth £6m-plus, it is the land on which it sits. So the LVT is just an attempt to collect the value of a property that has nothing to do with the actions of the owner and everything to do with the actions of the community.
In theory, it is not just an excellent tax but the best of all possible taxes. It discourages speculation and stops in its tracks the endless cycle of investment in land and property purely to rent it out. It promises no more property boom and bust. But, as it is not collected on any improvements made to land or to buildings on land, it does not discourage productive activity. Instead, it encourages people to bring idle land into use, to improve land they own and to be as productive as possible (when you have a pure LVT, earned income isn’t taxed at all).
Time for Land Value Taxation – in the Independent this morning
I am co-signatory of a letter in the Independent this morning that says:
The compulsory purchase of land banks proposed by Ed Miliband puts Labour’s housing policy in line with the supporters of land value tax (LVT). We believe that the present taxation system is flawed and unfair. When the value of UK land increases due to increased demand, the owners, including UK and international speculators, have done nothing to increase their personal wealth.
Renters gain nothing while their rents increase. The issue is how to make some of the increase in land value available to all. LVT taxes some of that increase in land value.
It should result in the abolition of the regressive council tax and business rates. It should cover all land, used and unused, so bringing land banks and empty homes into use, making investors look for income from renting, building and creating jobs to cover the tax. HMRC would spend less chasing tax-free money parked in overseas accounts; banks have yet to find a way of moving land into their vaults.
John Lipetz Coalition for Economic Justice
Richard Murphy Tax Research UK
Dr Stephen Battersby Pro-Housing Alliance
Rev Paul Nicolson Taxpayers Against Poverty, London N17
There is no doubt LVT has to be a part of any reasonable taxation policy in the future. That future should start now.
The Young are Doomed – and Only the Old can Save Them
If the only people who can afford to buy housing are the children of people who bought housing, it creates an unbridgeable divide between the haves and the have-nots. How about a land value tax levied on house prices? It would hit the older harder, the younger less, and cut dwelling costs by encouraging the cash-poor and asset-rich elderly to move into more modest accommodation.
Land Value Tax: The radical solution to the housing crisis
Land Value Tax, taking the form of an annual levy on the rental value of unimproved land, is the radical solution to the housing crisis. By taxing the value of land as opposed to the value of the property, land will be taxed whether it is built upon or not, which will encourage a more efficient use of land by making it economically efficient to develop where appropriate.
A surge of available land would lower the price, enabling smaller developers and housing associations (who in the face of declining government grants, are becoming increasingly dependent on income from construction), to join established house builders in providing a plentiful supply of affordable housing. Creating greater competition will see a reduction in rent and house prices, stabilising the housing market and creating a more equal relationship between landlords and tenants.
Either working simultaneously with reduced property taxes, or outright replacing the outdated and regressive Council Tax, Stamp Duty Levy, and Business Rates, a locally collected Land Value Tax would have to be phased in gradually and under the right blueprint.
This 2013 excerpt of CNBC, Nov 25, is by Diana Olick.
A lot of Asians are buying as an investment, but their kids are going to school here, so kids live in the home. They are looking at it more as an investment in education also.
While American secondary schools and universities are a big draw for the majority of Chinese buyers in California, Chinese are also concerned about China’s political instability, inflation, even pollution. They are paying all-cash for real estate in California, using it as a safe-haven for their wealth.
More than 20,000 attended an opening in Irvine CA, according to developers. The vast majority of lookers were Asian. Hoping to cash in on this new wave of investors, the builders are incorporating multigenerational floor plans and even Feng Shui designs.
The homes range from the mid-$700,000s to well over $1 million.
While no one would say specifically why certain families were shying away from the media, some alluded to the fact that many of the buyers don’t want any questions about where the cash is coming from. Some are buying multiple homes as investments, while others are moving their families to the U.S., intending to stay at least until their children graduate from college.
Ed. Notes: So Americans spend their money on cheap Chinese imports then the insider Chinese spend that money on pricey American homes-plus-home-sites. Americans think they’re saving money buying cheaper goods but actually they’re pushing up land values. Land has a way of always absorbing economic advantages.
Of course pricier land would not matter to buyers and citizens if they also had to pay Land Dues or a land tax or land-use fee or deed fee. Having to pay such a charge would make a bad investment for speculators, so they’d shy away and the price of land and homes would not inflate.
Further, such a charge would suck high land values into the public treasury. Ideally the government would spend the funds in ways that benefit society better than now how banks and other lenders spend the funds. Government could cut its counterproductive taxes, or subsidize a program that a majority might want such as socialized medicine, or pay citizens a dividend, or actually do all three, the value of sites and resources being so sky high.
Food shortage? Who says? One-third of food worldwide gets wasted.
A 2013 excerpt of the AP, Spt 11.
The U.N. food agency says one-third of all food produced in the world gets wasted, amounting to a loss of $750 billion a year.
The Rome-based Food and Agricultural Organization said that food in developing countries is wasted mostly due to poor harvesting techniques, while in high-income areas the primary cause of waste is careless consumer behavior.
The report said food waste hurts the environment by causing unnecessary carbon emissions, extra water consumption, and the reduction of biodiversity as farming takes over more land. The most serious areas of waste are of cereals in Asia and meat in wealthy regions and Latin America.
Ed. Notes: Hungry people, obviously, could use that food. They’d be happy to take it off the producers’ hands. If the hungry had more money, like getting a Citizen’s Dividend, then they could create some demand for that surplus food.
On the producer side, what’s needed is owner occupancy. An absentee owner getting government subsidies might not care about wasting some harvest — if he’s not there to see what’s happening, it’s hard for him to care. But an owner occupant not getting subsidized who had to work the land himself would have every incentive to put to good use every bushel of the harvest.
So how can we increase owner occupancy? We can charge land owners rent (or tax the land or institute land dues). When owners must pay rent, they lose the reason to keep land that they rent out to tenants; there’s no longer any reason to be a middle man. So the owners sell out, often to former tenants, and at prices that the former farm worker can afford. This geonomic recipe has worked before and can work again.
This 2013 excerpt of Op-Ed New, Nov 24, is by Fred Harrison, a graduate of University College, Oxford, where he read Politics, Philosophy & Economics.
How much does society spend for the nature it uses? For the land and resources? In the jargon, how much “ground rent” is produced in the economy? There is no answer in the economic literature.
But if America was a tax-free zone, the tax base would become this natural rent. People would use the money to bid up the price of locations when they buy homes and sellers would jack up their asking price to the greatest amount anyone would be willing to pay. In the US in 2013, tax revenue was $5.3tn (GDP: $16.2tn).
How much of a nation’s revenue currently is visible as land rent? This is rent that is not collected by government. The prudent estimate is that rents in private pockets amount to about 20% of national income.
If we take a random selection of 10 rich nations, ranging from Australia through the US to Sweden, Germany, and Japan, the average tax-take as a percent of GDP is 37%. If we add to this the rent that is not collected by government, of around 20%, we find that rent exceeds 50% of national income.
This first approximation of rent needs to be adjusted.
1. Taxes distort total income. They encourage the
- Under-use of urban land (which artificially raises rents). and they
- motivate behavior that damages the environment, as when polluters do not have to pay for dumping waste into the atmosphere (which artificially reduces rents).
2. A small part of tax revenue may actually fall on wage earners, rather than being shifted (ultimately) onto rent. People with no bargaining power are particularly vulnerable.
Such considerations add to, and subtract from, rent. Further assessment is required, but the outcome would not significantly modify the conservative estimate that rent is about 50% of total income. This is more than sufficient to cover existing government financial commitments.
On what terms would that revenue be raised? Through the land market, the people themselves negotiate the rents they are able to pay for the use of services available at each location. By this process of free negotiation, who paid, and how much they paid, would be settled by citizens, not politicians or the servants of the State.
Want a real overhaul of the tax code? Here’s an elegant way to reduce inequality and mitigate poverty — in one tax.
This 2013 excerpt of Salon, Nov 22, is by Jesse Myerson. It was republished in Alternet.
At present, neither party advocates the tax code so elegant it can reduce inequality, mitigate poverty, stimulate productivity, prevent asset price bubbles, stem community-shredding gentrification and drain the distended Wall Street cabal of its ill-gotten gains – in just one tax.
Land value. If we want a real overhaul/simplification of the tax code, the way to do it is to tax land value. It might be the only tax we need. No sales tax. No income tax. No payroll tax to fill a Social Security trust fund. No corporate income tax that, as we can plainly see, offshores profits. No need to tax labor and industry at all. Just tax the stuff that humans had nothing to do with creating, and therefore have no basis to claim ownership over at all. You’ll find that almost all of it is “owned” by the fabled 1 percent.
And boy are they sucking a lot of money out of it. By far the most valuable asset form in the U.S. is real estate, and the majority of that is the value of the land, as distinct from the value of the human-made buildings. Economist Michael Hudson has assessed that the land value of New York City alone exceeds that of all of the plant and equipment in the entire country, combined. No owner put any enterprise or cost into producing the land’s value – they simply bought it when it was cheap, sold it when it was dear, and waited for the check. “They” are the Finance, Insurance and Real Estate (FIRE) sector, and they capture 40 percent of the United States’ profits, despite the complete passivity of their profit-accumulation method.
Not only would a land value tax (LVT) drastically shrink that Wall Street bloat, it would have prevented the housing bubble in the first place. Land, after all, was the speculative commodity at play, not the houses themselves, which, as “Arrested Development” incisively suggested, were a bunch of crap. With an LVT, the cookie-cutter McMansions in suburban housing developments would only be worth the cost of their cheap paneling, artificial marble and the rest of it. Without one, they were wrongly assessed as being worth the value of the land they stood upon, which speculators bid up and up and up.
An LVT would stimulate urban property development without incurring the socially catastrophic ethnic displacement pattern we call “gentrification.” As that noted far-left rag the Economist notes, “Property developers … would be less inclined to hoard undeveloped land if they had to pay an annual levy on it.” Despite this, the new developments wouldn’t push rents up throughout the rest of the neighborhood, because the increased land value would be taxed. The rest of the apartment buildings in the area didn’t get any nicer. So why should they cost more? Urban land, scarce by definition, is very valuable. There is no reason to let a small group of rich landlords extract its value, when what created the value are parks, subways, local restaurants, and other things the landlords didn’t provide.
Nothing could simplify and demystify the taxation experience for Americans like making sure that the vast majority of us who don’t own the resources, who don’t collect rent and capital gains, who have to work to get our paychecks, wouldn’t ever have to mark April 15 on the calendar again.
The amount of revenue that can be raised by taxing the land is huge. Enough, for example, to support truly liberatory social spending, like a universal basic income, without risking inflation.
Ed. Notes: The reform to raising public revenue can get even simpler still. If you don’t like taxes at all, don’t use any. You can still recover the socially-generated value of land. You can charge land-use fees or require Land Dues, plus lease public land at full market value. You can record deeds and titles at full market value of the location, too. No need to tax.
Plus, land is not the only thing of value that was not created by anyone providing their labor or capital. There’s also government-granted privilege, such as corporate charters, patents and copyrights, utility franchises, and the power to print new money. These little official pieces of paper don’t require work (excluding lobbying) nor investment (unless you mean campaign contributions). Charge full market value — that’s the principle: quid pro quo — for those little pieces of paper, too, as you did to leases and deeds. Your public treasury will be stuffed to bursting.
And to make it yet simpler for everyone, collect the rents from owners monthly and pay the citizenry a dividend monthly from surplus public revenue. Most people would come out a little ahead. The poor would really do well. And those who’ve been calling the shots for so long would finally pay for the privilege of having lorded it over everyone else for so long.
These three 2013 excerpts about the wealth gaps are from Reuters: (1) Spt 10, on the elite by Paul Wiseman and (2) Spt 17, on the poor by Lucia Mutikani, Caroline Humer, and Susan Heavey.
Top 1% Took Record share of 2012 US Income
The income gap between the richest 1 percent and the rest of America widened to a record last year.
The top 1 percent of U.S. earners collected 19.3 percent of household income in 2012, their largest share in Internal Revenue Service figures going back a century.
U.S. income inequality has been growing for almost three decades. But until last year, the top 1 percent’s share of pre-tax income had not yet surpassed the 18.7 percent it reached in 1927.
Incomes of the richest Americans might have surged last year in part because they cashed in stock holdings to avoid higher capital gains taxes that took effect in January.
Last year, the incomes of the top 1 percent rose 19.6 percent compared with a 1 percent increase for the remaining 99 percent.
Since the recession officially ended in June 2009, the top 1 percent have enjoyed the benefits of rising corporate profits and stock prices: 95 percent of the income gains reported since 2009 have gone to the top 1 percent.
That compares with a 45 percent share for the top 1 percent in the economic expansion of the 1990s and a 65 percent share from the expansion that followed the 2001 recession.
The top 10 percent haven’t done badly, either. Last year, they captured 48.2 percent of income, another record. Their biggest previous take was 46.3 percent in 1932.
The top 1 percent of American households had income above $394,000 last year. The top 10 percent had income exceeding $114,000.
Paul Krugman, New York Times columnist: Of the gains made by the top 10 percent, almost none went to the 90 percent to 95 percent group; in fact, the great bulk of gains went to the top 1 percent. In turn, the bulk of the gains of the top 1 percent went to the top 0.1 percent; and the bulk of those gains went to the top 0.01 percent. We really are talking about the flourishing of a tiny elite.
U.S. Poverty Rises Despite Economic Recovery
The number of U.S. residents living in poverty edged up to 46.5 million last year. Although the number of people in poverty went up from 46.2 million in 2011, the national poverty rate was unchanged at 15 percent. The poverty threshold in 2012 was an income of $23,492 for a family of four.
The recovery from the worst recession since the 1930s has been marked by a jump in stock prices to record highs, aided in part by the Federal Reserve’s ultra easy monetary policy.
While the Standard & Poor’s 500 index gained 16 percent on a total return basis last year, including reinvested dividends, the Census Bureau report showed median household income slipped to $51,017 from of $51,100 in 2011.
Although the bulk of the more than 8 million jobs lost during the downturn have been recouped, many of the jobs have been in services industries such as retail and restaurants that typically do not pay well.
About 16.1 million children and 3.9 million people aged 65 years and older were living in poverty last year. The uninsured rate for children in poverty was 12.9 percent compared with 7.7 percent for children not in poverty, the Census found.
Ed. Notes: The rich don’t get richer by working harder or smarter but by owning stocks of companies that own prime land and modern capital; those companies get subsidies from the government and their payouts get tax loopholes. Eventho’ it’s not fair, it is instructive: it shows how to end poverty.
That is, quit the corporate welfare and (perhaps surprisingly to some) quit the taxes on earnings. Instead uses taxes or fees or dues or leases to recover the worth of Earth, the annual rental value of sites and resources. Redirect that — all of society’s spending for nature — into the public treasury then back out again as dividends to members of society.
Then all remaining fortunes won’t be gifts from the state but truly earned and, more importantly, poverty will be no more. The dividend will provide a basic income and the combination of no taxes on earnings with a hefty charge for owning land, especially downtown locations, will greatly expand the opportunities for investment and employment. A wealth gap will remain, but it won’t be much; citizens at both ends of the spectrum will be able to see each other.
An alternative to the local property tax, the land value tax offers certain benefits over the economically inefficient property tax. However, its novelty and legal and political challenges continue to make it an elusive option at this time.
A 2013 excerpt of the Eye on Housing, Nov 18, by the NA of Home Builders.
According to numerous polls, the most hated tax is the local property tax. The property tax is economically inefficient because it taxes the value of improvements, which acts as a tax on economic development. One alternative to the property tax is the land value tax.
Local governments in New York, Pennsylvania and Hawaii have used it. In addition, twenty-five nations use some form of the land value tax.
The land value tax provides an incentive for development. Economists Oates and Schwab find a positive association between adoption of land value taxation and building activity in Pittsburgh. Under a split-rate system, the higher the land tax in relation to the improvements tax, the more building activity occurs.
Property taxes are the largest single source of revenue for state and local governments, accounting for over one-third of all revenue. The county of Hawaii abolished the land value tax in 2002. This June the state of Connecticut signed into law a pilot program letting three municipalities implement a land value tax.
Reprinted in RIS Media, the leader in real estate information.
Ed. Notes: Real builders should like a tax shift that stimulates construction. It’s those who’re speculating in land, withholding prime sites from beneficial use, are the ones who may be opposed. For everyone else, a tax or fee or dues on land could increase how much the landowner must pay. But to assuage that, the collecting government could return a hefty portion of the raised revenue to residents as a monthly dividend. It’s their money, any way. It’s the presence of society as a whole, not the ownership of individuals, that generates the value of land. Thus, locational value is a common wealth; we should treat it as such. Then builders would get more business and, more importantly, they’d be building in a better society, where more people prosper and enjoy life as it’s meant to be lived.
These two 2013 excerpts on public pension reform — the first about the problem, the second about the solution — are from (1) USA Today, Nov 18, by their Editorial Board and (2) the Toronto Star, Nov 4, by Frank deJong, head of EarthShare Canada.
Rein In Reckless Public Pensions
Excessive retiree benefits — which account for 20% of San Jose’s $1.1 billion budget, for instance — drain governments of the money needed for education, housing, parks and public safety.
Estimates for the total shortfall of public pensions start at about $700 billion. In 2011, the Congressional Budget Office said that $2 trillion to $3 trillion was more accurate. Even a long bull market won’t make the problem go away.
Detroit is Exhibit A for municipal irresponsibility. It negotiated generous pensions, even overpaid in some cases, as the city began its long descent into bankruptcy. Illinois tops most lists of states in trouble.
Fueling taxpayers’ anger is that they are financing benefits no longer available to most private-sector workers. Some state and local government workers can retire in their 50s, after 33 years of service, and continue drawing the same income.
An Ontario pension plan, as suggested by Premier Kathleen Wynne, is warranted. Too many seniors in this province don’t receive sufficient private or public pension benefits.
However, instead of raising taxes on incomes, sales or business (dead-weight taxes that damage the economy), the new pension plan should be financed by capturing some of the unearned income that accrues to Ontario’s monopoly-owned assets like land and resources — wealth that economists call “economic rent.”
Economic rent is revenue with no corresponding cost of production. It is wealth belongs to all citizens by birthright, which makes it an ideal way to finance a pension plan.
Our seniors, who spent their working lives building Ontario, should receive a “senior’s dividend” — their share of the public wealth generated by the commons.
This 2013 excerpt of the Los Angeles Times, Spt 9, is by The Times editorial board.
Federal efforts to protect growers of sugar beets and sugar cane epitomize everything that’s wrong with U.S. farm programs. At times they’ve artificially raised the price of sugar, costing consumers billions of dollars; at other times they’ve stuck taxpayers with the bill for the surplus sugar production they’ve promoted.
Sweeteners are ubiquitous in processed foods, and sugar is the most popular by far. There are two primary sources in the United States: sugar beets and sugar cane, which is grown only in Hawaii, Texas, Louisiana, and Florida.
Like the rest of the agriculture industry, beet and cane growers enjoy considerable protection from the federal government that’s not contingent on their incomes. But while other farmers are typically offered subsidized crop insurance (taxpayers cover roughly 60% of the cost) and guarantees against steep reductions in revenue, beet and cane farmers are also protected by import and production quotas that limit supply, deter competition, and inflate prices.
When unusually big harvests in the United States and Mexico (which faces no import quota on its subsidized products) push sugar prices below the target set by Washington, growers unload surplus sugar onto the federal government in lieu of repaying their federal loans, forcing Washington to sell the sweetener below cost to ethanol producers. Both of those things are happening this year.
U.S. farm program benefits flow overwhelmingly to the largest — and, consequently, most durable — agribusinesses; 10% of the farm operations collect 60% of the $23.5 billion in annual farm subsidies.
Sugar growers gave more than $4 million to members of Congress in the 2012 campaign. The largest buyers of sugar — bakers and confectioners — contributed about $250,000.
The unusually high farm profits in recent years have given Congress a golden opportunity to try to wean agribusiness from sugar subsidies and other market-distorting protections.
Ed. Notes: The politicians giving public money to the well-connected who don’t need it may seem wrong, but it is the role of government, and has been forever. Trying to reduce the subsidies or redirect them to the “right” recipients has never succeeded. What’s needed is a total overhaul, a transformation of government, a paradigm shift in how we see ourselves and our rulers. We need to see ourselves as worthy of spending our money, thank you very much.
That is, we’d each get a share of the common wealth, of surplus public revenue. With this extra income, farmers would not need any other public assistance. Their share would go further in the countryside where the cost of living is much lower. And they could adopt the strategy of selling directly to consumers, cutting out the middleman — those are the corporations who make the most off of a family’s food budget, not the farmer, and certainly not the lowly farmworker.
So say “no” to all subsidies, abolish them, root out the very concept of bribing politicians and winning handouts as a decent way of conducting business. Replace all that papered-over dishonesty with the share-Earth ethic in which each member of society gets a fair share of Earth’s worth — saving billions in pubic subsidies.
Jobless Growth, the 21st Century Condition in Poor Nations
This 2013 excerpt of the IPS, Nov 25, is by Samuel Oakford.
Though the percentage of people living in extreme poverty (less than 1.25 dollars per day) has declined in LDCs, their numbers have increased due to population growth.
While the economies of LDCs expanded yearly by over 7.5 percent in the decade before the 2008 financial crisis, employment growth per annum stood at just 2.9 percent between 2000-2012, barely ahead of the population growth rate of 2.3 percent.
If high growth couldn’t buoy the job market during boom years, a period of slower increases will require specifically catered policies to spur employment.
In Namibia, the government has set up a national mining company, hoping to replicate Chile’s CODELCO and not the bloated state-run enterprises of post-independence Africa.
If Chile is a model for mineral exporters, garment producers look to Taiwan, South Korea, and Singapore, all of which began by manufacturing textiles before graduating to more complicated consumer goods and electronics.
Ed. Notes: As usual, the wannabe problem-solvers want to tax the businesses that have succeeded, which reduces their success and does not necessarily create success for anyone else. It’s like the swing of the pendulum from leftwing mistakes to rightwing mistakes and back again. How can well-meaning people be so blind to the land? All three of the Asian examples cited — Taiwan, South Korea, and Singapore — first implemented land reform. Not taking land away from large landholders but by taxing the value of land, so owners sold off their excess, usually to their tenant farmers, at prices the landless could afford. The thousands of new family-owned farms is what founded the bedrock of the Asian Tiger miracle economies, and its a reform that could work anywhere. Longer ago, it also worked in Denmark, California, Australia, and New Zealand. Look where their economies are today!
This 2013 excerpt of the Washington Post, Spt 9, is by Debbie Cenziper, Michael Sallah, and Steven Rich.
Steven Berman, son of a Baltimore banker, swept into the District during the height of the housing boom, flush with money and ready to take on hundreds of bidders at the city’s high-stakes tax lien auction.
From 2005 to 2007, Berman’s companies dominated the bidding room, spending millions to buy the liens placed on properties when owners fall behind on their taxes.
He was a big player at tax lien auctions in Maryland, too, where he was caught in 2007 rigging bids at sales across the state, leading to the largest criminal conspiracy case of its kind at the time.
A Washington Post investigation found that during Berman’s spectacular spending spree in the city, his companies engaged in dozens of rounds of irregular bidding similar to what federal agents had discovered in Maryland.
All told, six companies, three owned by Berman, took turns winning hundreds of liens on real estate worth $540 million through unusual back-and-forth patterns of bidding never detected by city government.
Of hundreds of participants, only those six companies stood out for bidding that was so irregular that the odds of it happening by chance were less than 1 in 1,000, according to The Post’s analysis, which was conducted with a team of economists and antitrust experts from Boston.
Once the liens were won, the companies charted an aggressive course through the District that would shake families for years to come, pressing to foreclose on homes in every ward — often over tax debts of $500 or less.
Ed. Notes: Why does real estate and fraud go hand in hand? And what’s the government doing, selling people’s tax-debt to private collectors? How slimy is that? What government should auction off, and do so with its eyes open, are vacant lots and abandoned buildings. How much money the government gets at the auction won’t matter so much as long as later the government recovers the ongoing annual rental value of the locations, which will rise as the new owners develop their latest acquisitions.
Further, people could afford to pay a tax on property if the tax did not also fall on the value of the building — a stupid tax that merely induces owners to forgo maintenance and improvements — and if the residents were to receive a share of the recovered revenue. It’s a recipe that works elsewhere. In British Columbia, to make the tax on carbon more affordable to lower-income people, the BC government shares out some of the collected revenue as a dividend to residents.
In Maryland, Washington DC, everywhere, the government could use the same scheme: recover all the socially-generated value of all the locations but then pay out the lion’s share as a dividend to residents. Doing so is somewhat similar to what Aspen Colorado does and what Singapore does. Singapore prospers so notably because it keeps taxes on people’s efforts low and taxes on the rising value of locations high, then disburses some of its revenue surplus back to its citizens. It’s a policy that would solve the problem of tax delinquency in Maryland and Washington DC.
as unfamiliar as geo-economics. The latter is a course some universities offer that combines geography and economics. A UN newsletter, Go Between (57, Apr/May ’96; thanks, Pat Aller), cited an Asian conference on geopolitics and “geoeconomics”. The abbreviated term ‘geonomics” is the name of an institute on Middlebury College campus and of a show on CNBC. Both entities use the neologism to mean “global economics”, in particular world trade. We use geonomics entirely differently, to refer to the money people spend on the nature they use, how letting this flow collect in a few pockets creates class and poverty and assaults upon the environment, and how, on the other hand, sharing this rental flow creates equality, prosperity, and a people/planet harmony. This flow of natural rent, several trillions dollars in the US each year, shapes society and belongs to society.
an economic policy based on the earth’s natural patterns. Eco-systems self-regulate by using feedback loops to keep balance. Can economies do likewise? Why don’t they now produce efficiently and distribute fairly? The answers lie in the money we spend on the earth we use. To attain people/planet harmony, that financial flow from sites and resources must visit each of us. Our agent, government, must collect this natural rent via fees and disburse the collected revenue via dividends. And, it must forgo taxes on homes and earnings, and quit subsidies of either the needy or the greedy. As our steward, government must also collect Ecology Security Deposits, require Restoration Insurance, and auction off the occasional Emissions Permit. And that’s about it – were nature our model.
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.
suitable for framing by Green Parties. When Greens began in Germany two decades ago, they defined themselves as neither left nor right but in front. Geonomics fits that description. The Green Parties have their Four Pillars; geonomists have four ways to apply them:
Ecological Wisdom. Want people to use the eco-system wisely? Charge them Rent and, to end corporate license, add surcharges. To minimize these costs, people will use less Earth.
Nonviolence. Want people to settle disputes nonviolently? Set a good example; don’t levy taxes, which rely on the threat of incarceration, to take people’s money. Try quid pro quo fees and dues.
Social Responsibility. Want people to be responsible for their actions? Don’t make basic choices for them by subsidizing services, addicting them to a caretaker state. Let people spend shares of social surplus.
Grassroots Democracy. Better have grassroots prosperity. Remember, political power follows economic. Pay people a Citizens Dividend; to keep it, they’ll show up at the polls, public hearings, and conventions.
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.
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 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 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 log-gers 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.
not exactly Georgism, the Single Tax on land value proposed by Henry George. He did, tho’, inspire most of the real-world implementations of the land tax that some jurisdictions enjoy today, and modern thinkers to craft geonomics. While his name and our remedy both begin with “geo” since both words refer to “Earth”, the two have their differences. (a) George pegs land monopoly as the fundamental flaw while geonomics faults Rent retention. (b) To fix the flaw, George was content to use a tax, while geonomics jettisons them in favor of price-like fees. (c) George focused on the taking while geonomics headlines the sharing. George envisioned an enlightened state judiciously spending the collected Rent while geonomics would turn the lion’s share over to the citizens via a dividend. (d) And George, as was everyone in his era, was pro-growth while geonomics sees economies as alive, growing, maturing, and stabilizing. Despite these differences, George should be recognized as great an economist as Euclid was a geometrician.
a study of Earth’s economic worth, of the money we spend on the nature we use, trillions of dollars each year. We spend most to be with our own kind; land value follows population density. Besides nearness to downtowns, we also pay for proximity to good schools, lovely views, soil fertility, etc. These advantages, sellers did not create. So we pay the wrong people for land. Instead, we should pay our neighbors. They generate land’s value and deserve compensation for keeping off ours, as they’d pay us for keeping off theirs. It’s mutual compensation: we’d replace taxes with land dues – a bit like Hong Kong does – and replace subsidies with “rent” dividends to area residents – a bit like Alaska does with oil revenue. Both taxes and subsidies – however fair or not – are costly and distort the prices of the goods taxed and the services subsidized. By replacing them and letting prices become precise, we reveal the real costs of output, the real values of consumers. Then, just by following the bottom line, people can choose to conserve and prosper automatically. A community could start by shifting its property tax off buildings, onto land – a bit like a score of towns in Pennsylvania do; every place that has done it has benefited.