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This 2013 excerpt of the Wall Street Journal, Dec 2, is by David Wessel.
Over the past 64 years and 16 presidential terms, the U.S. grew at an average rate of 4.35% when a Democrat was in the White House and at a 2.54% when a Republican was, a gap economists call “astoundingly large.”
The research was done by Alan Blinder, a macroeconomist who served in the Clinton White House and has advised several Democratic candidates, and Mark Watson, an econometrician who hasn’t dabbled in partisan policies.
Democrats would no doubt like to attribute the large Democrat-Republican growth gap to better macroeconomic policies.
The researchers reject the assertion that Democrats inherit stronger economies from Republican predecessors than vice versa. Instead, they assert it’s a matter of luck.
– Oil price shocks tend to occur when Republicans are in the White House: President Richard Nixon for the first OPEC oil shock, President Jimmy Carter for the second, but sGeorge H.W. Bush’s Gulf War and George W. Bush’s Iraq war were policy decisions that affected oil prices.
– Surges in productivity, or output per hour, account for about one-quarter of the gap.
– Swings in consumer confidence explain about a quarter of the Democrat-Republican gap between 1962 and 2013.
The difference between growth rates when Democrats control Congress and Republicans do is trivial. It’s the president’s party that matters.
There is a slight tendency for Fed-influenced interest rates to rise during Democratic presidencies and fall during Republican presidencies. This doesn’t suggest the Fed playing politics; it’s what the Fed does when the economy grows faster with rising inflation, which is what tends to happen when Democrats hold the White House.
A similar partisan growth gap is seen in Canada, but they found no statistically significant difference between economic growth records of left and right governments in the U.K., France or Germany.
Ed. Notes: While economists get lots of money and prestige for fiddling with numbers, numbers do not always tell the truth. As wits have been noting for over a century: “There are three types of lies: lies, damnable lies, and statistics.” Democrats were president during both the Great Depression and the Great Recession.
Further, there is the matter of lag time. Some policies don’t have an immediate impact; a subsidy to, say, dam builders would take years to bear fruit or wreak havoc. Plus, the first budget of a new administration they inherit as the last budget of the outgoing administration.
All in all, it’s a fun exercise if you like politics but essentially a distraction from the real issues that economist should measure: Why won’t the workweek shrink with so much techno-progress? And, how much damage do subsidies do? What’s their net gain or loss? And, how much more do people prosper when taxes get shifted off our efforts and onto never-produced land and resources and privileges? You could surely add to the list.
This 2013 excerpt of Pacific Standard, Spt 13, is by Tom Jacobs.
The easiest way to increase the value of your home [site]? Live near a winning high school football team.
A study of more than half a million single-family home [+land] sales in upstate New York between 2000 and 2009 finds that in places where the local Friday Night Lights squad won its first state football championship, property [location] values increased by 1.65 percent over the following year.
Andrew Friedson of the University of Colorado-Denver speculates the spike may be due to a “local pride effect,” most pronounced when the team plays in the highly competitive AA division, which is limited to schools with 1,000 students or more. The impact was strongest in the first three months following a championship victory, after which it gradually dissipated.
Ed. Notes: Not only in Texas but all across America regular Americans are crazy about their version of rugby they call football. I guess it must be nice to live near the loud cheering carrying across the familiar blocks on a fall Friday night. But it’s the location that rises in value, not anything on it, the media routinely neglect to point out.
The phenomenon is not just interesting but also presented as good news. American media assume homeowners don’t own homes so much as speculate in their house. A higher price for the site beneath the house doesn’t mean a higher land tax or land dues — eventho’ it should — but rather means a fatter profit when the owner sells out and moves on, uprooting his family and fraying the neighborhood fabric.
Scoring big in real estate is about the only way most regular people can every hope to score. It’s not capitalism that’s spreading over the world with the rise of China and others but land fever that’s infecting the human race. Like in a game of musical chairs, most ordinary people only hope to win and get out before the bubble bursts.
China accused of stealth land grab over Mozambique’s great rice project.
This 2013 excerpt of The Ecologist, Nov 30, is by Cecilia Anesi and Andrea Fama.
When you visit the Xai-Xai rice project its sheer scale takes you aback. Black soil, perfectly ploughed, extends for miles until it touches the horizon.
Local NGOs allege that 80,000 people have been displaced by the project; that villages have been left as small islands of habitation surrounded by square kilometres of intensively farmed land where villagers can no longer grow food, or graze their cattle; that crops have been run over or ploughed under; that cemeteries have been despoiled to make way for new developments.
Most worrying of all, they say these impacts are set to multiply as the farming project expands into new territory. The same NGOs also accuse the project of being led with lack of consultation with local communities, and violations of the International Labour Organization’s convention 169 which protects the rights of indigenous peoples.
As with many things in Africa, hard facts are difficult to come by. The project enveloped a massive portion of land, taking it from poor people most of whom had never heard the term ‘land rights’. The Chinese company that reaped the rewards, like a hostile alien invasion, has ‘conquered’ — dismissing any doubt regarding its right to be there. But it is the Mozambique Government that has allowed this to take place – and even encouraged it.
While dedicating all the project area to monocultural intensive farming might satisfy Southern Mozambique’s rice demand, it will certainly not solve the problems of hunger in Xai-Xai district. A partial solution could lie in allowing local farmers to continue using the machambas close to the villages, while contracting local farmers to work on Wanbao’s rice production project.
Ed. Notes: It’s an all too common occurrence: the powerful take land from the weak. Looking deeper, powerful locals and powerful outsiders collude to get what they want, the weak be damned. Haven’t we seen enough yet? Perhaps a more just system would be for the powerful to rent the land from the weak. Then the weak would be compensated, the powerful would acknowledge and perform their responsibilities, and the land would be put to its most productive use.
It’s not the morphine, it’s the size of the cage: Rat Park experiment upturns conventional wisdom about addiction
A 2013 excerpt of garry’s subposthaven, Spt 13.
About the rats in a cage who can self-administer morphine who get addicted to the stuff, and then just hit that lever until they die. A seemingly keystone argument in the war against drugs. But there’s another model: drugs do not cause addiction, living conditions do. Laboratory rats kept isolated in cramped metal cages, tethered to a self-injection apparatus, show only that severely distressed animals, like severely distressed people, will relieve their distress pharmacologically if they can.
Rat Park housing colony, 200 times the square footage of a standard laboratory cage, had 16–20 rats of both sexes, an abundance of food, balls and wheels for play, and enough space for mating and raising litters. Rats who had been forced to consume morphine hydrochloride for 57 consecutive days were brought to Rat Park and given a choice between plain tap water and water laced with morphine. For the most part, they chose the plain water. Control groups of rats isolated in small cages consumed much more morphine in this and several subsequent experiments.
Rats that are born into extreme conditions in small cages are clearly more likely to self-medicate.
The results are catastrophic for the simplistic idea that one use of a drug inevitably hooks the user by rewiring their brain. When Alexander’s rats were given something better to do than sit in a bare cage they turned their noses up at morphine because they preferred playing with their friends and exploring their surroundings to getting high.
Perhaps it’s time the war on drugs becomes a war on the existence of poverty? It’s not about the drugs. It’s about the social environment in which we live.
Ed. Notes: A big part of social conditions is the size of our space. Crowding many people into small spaces happens when those people are poor, of course, but also when space is limited. Who limits space? Speculators do, when they withhold locations from productive use. And cities do, when they rely on taxes upon sales and income and buildings and so let lots lie vacant and buildings remain abandoned.
To motivate both calculating speculators and dull-witted cities, reform the flow of public revenue. Don’t let governments tax anything willy-nilly but require them to first recover the values that society generates before trying to tax anything else. What values does the mere presence of society generate? Those would be the values of locations. Levy a land tax or require Land Dues. Then owners will quit keeping land under-utiliized and to afford the charge get busy and develop their sites or sell to others. To increase public revenue, cities too will sell-then-tax or lease public land.
All that activity will increase the supplies of both land and buildings. Plus, the construction of buildings and filling some of them with shops and stores will increase job opportunity, raise wages, and give poor people the chance to climb into prosperity. In a society of prosperous people following fair economic rules, people will feel more worthy and hence less likely to need to escape via drugs.
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.
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.
an answer to a rarely asked question. If price is a reward for production, why do we pay for land, never produced by any of us? What is land price a reward for? Good behavior? How much money do we spend on the nature we use? Who gets it? What do they do with it? (If you answer all these correctly, you’re not a genius but a geoist.) The worth of Earth is enough that were we to collect and share it, we could abolish taxes on the goods we do produce. For example, San Francisco’s Redefining Progress has calculated that Cali-fornia could abolish all state and local taxes were it to collect the values of resources and of using na-ture as a dump. By exorcising the profit motive from depletion and pollution, rent collection could replace bossy regulation. Economies could self-regulate, as the rest of the eco-system does. See how big problems yield to big answers when we ask the right questions?
close to the policy of the Garden Cities in England. Founded by Ebenezer Howard over a century ago, residents own the land in common and run the town as a business. Letchworth, the oldest of the model towns, serves residents grandly from bucketfuls of collected land rent (as does the Canadian Province of Alberta from oil royalty). A geonomic town would pay the rent to residents, letting them freely choose personalized services, and also ax taxes. Both geonomics and Howard were inspired by American proto-geonomist Henry George. The movement launched by Howard today in the UK advances the shift of taxes from buildings to locations. A recent report from the Town and Country Planning Association proposes this Property Tax Shift and their journal published research in the potential of land value taxation by Tony Vickers (Vol. 69, Part 5, 2000). (Thanks to James Robertson)
a 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.
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.
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.
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 neologism for sharing “rent” or “social surplus” – the money we spend on the nature we use. When we buy land, such as the land beneath a home, we typically pay the wrong person – the homeowner. Instead, since land cost us nothing to make and is the common heritage of us all, rather than pay the owner, we should pay ourselves, our neighbors, our community. That is, we should all pay land dues to the public treasury, then our government would pay us land dividends from this collected revenue. It’s similar to the Alaska oil dividend, almost $2,000 last year. Indeed, the annual rental value of land, oil, all other natural resources, including the broadcast spectrum and other government-granted permits such as corporate charters, totals several trillion dollars each year. It’s so much that some could be spent on basic social services, the rest parceled out as a dividend, as Tom Paine suggested, and taxes (except any on natural rents) could be abolished, as Thomas Jefferson suggested. Were we sharing Earth by sharing her worth, territorial disputes would be fewer, less intense, and more resolvable.
a neologism for sharing “rent” or “social surplus” – the money we spend on the nature we use. When we buy land, such as the land beneath a home, we typically pay the wrong person – the homeowner. Instead, since land cost us nothing to make and is the common heri-tage of us all, rather than pay the owner, we should pay ourselves, our neighbors, our community. That is, we should all pay land dues to the public treasury, then our government would pay us land dividends from this collected revenue. It’s similar to the Alaska oil dividend, almost $2,000 last year. Indeed, the annual rental value of land, oil, all other natural resources, including the broadcast spectrum and other government-granted permits such as corporate charters, totals several trillion dollars each year. It’s so much that some could be spent on basic social services, the rest parceled out as a divi-dend, as Tom Paine suggested, and taxes (except any on natural rents) could be abolished, as Thomas Jeffer-son suggested. Were we sharing Earth by sharing her worth, territorial disputes would be fewer, less intense, and more resolvable.
shaped by reality. In the 1980′s, the Swedish government doubled its stock transfer tax. Tax receipts, however, rose only 15%, since traders simply fled to London exchanges. Fearing a further exodus, the Swedish government quickly rescinded the tax altogether. (The New York Times, April 20) That willingness to tax anything leads us astray. Pushing us astray is that unwillingness to pay what we owe: rent for land, our common heritage. Assuming land value is up for grabs, we speculate. We cap the property tax on both land and buildings and the rate at which assessments can go up; while real market values rise quicker, assessments can never catch up. Our stewards, the Bureau of Land Management, routinely sell and lease sites below market value, often to insiders, says the Government Accounting Office. Once we grasp that rent is ours to share, we’ll collect it all, rather than let it enrich a few, and quit taxing earnings, which do belong to the individual earner. That shift is geonomic policy.