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The average rich country, including all levels of government, raises under 5% of total tax revenue from annual levies on land or the buildings on it. The norm in middle-income emerging economies is lower still, at around 2% of all tax revenue (see right-hand chart). Including property-transaction taxes like stamp duty raises the total a bit but not by much.
These averages mask big differences. Property taxes loom largest in Anglo-Saxon economies. In America they still account for 17% of all government revenue; in Britain and Canada the figure is around 12%. Only 2% of revenues come from annual property taxes in Germany and Italy; in Switzerland it is a mere 0.4%. A small share of national tax revenue can belie the importance of property taxes for the local governments that tend to levy them. In Australia and Britain taxes based on property are the only source of local-government tax revenue. America’s local authorities get around 70% of their revenue from property taxes. But, overall, property taxation plays a relatively small role.
That’s a pity. Taxing land and property is one of the most efficient and least distorting ways for governments to raise money. A pure land tax, one without regard to how land is used or what is built on it, is the best sort.
Why don’t governments raise more money from property? A few are trying to. Mr Norregaard cites almost 20 countries that have recently introduced new property taxes, or are considering doing so. Namibia recently introduced a land tax on agricultural land; Ireland is reintroducing a tax on residential property that was abolished in 1997. Britain’s opposition Labour Party has suggested taxing developers who sit on land and don’t build on it.
These taxes are wildly unpopular, often spawning opposition quite out of proportion to their scale. Mario Monti, Italy’s former technocrat prime minister, lost the election earlier this year for many reasons but his much-loathed decision to raise a tax on property played a substantial part. Asked in surveys what is the worst or least fair tax, Americans consistently cite property taxes.
Most American homeowners pay property taxes in one or two lump sums during the year. Around a third (mainly those with mortgages) have their payments bundled in with monthly mortgage payments. How people pay property taxes affects their tolerance for them. The more people pay in lump sums, the lower property taxes are likely to be.
For property taxes to become a much bigger source of revenue, governments must apparently ensure people don’t realise how much they are paying.
Turks were also protesting against Recep Tayyip Erdoğan’s “crazy” projects, which are hastily proceeding without any serious impact evaluation studies, environmental, economic or otherwise. The new Istanbul airport is one of the most notable of these projects.
The construction consortium would need to raise fees by 17 euros per passenger just to break even, but that would decrease the airport’s attractiveness. The only other option would be to earn significant non-operating income on the land allocated to the airport.
That land is very large compared to Atlanta and other major airports. All the firms in the consortium are in construction, so they may be “hoping” to get some extra income from “extracurricular” rent-seeking activities such as real estate and infrastructure development around the airport.
JJS: If the consortium’s airport income turns out to be not enough so they won’t be able to pay what they owe the government, will they still be able to keep their income from their surrounding development projects? It wouldn’t surprise me if that’s how it turns out but it’ll be a few years before we know.
This is another good example of why it’s a bad idea to let government be in the money lending business. If a new, third, airport is a good idea in Instanbul, let its proponents make their case to private investors and bond buyers, like smaller, less-well-connected builders have to do. And let the private profit come only from the structure, let the profit from the location accrue to all members of society in general, via a “rent” dividend to residents.
With these strictures in place, then we’d easily find out in advance which projects are beneficial to society, worth proceeding with, and which are not — so we could save our land and money for new developments that truly would benefit everyone.
In a 5-to-4 decision, with Justice Samuel A. Alito Jr. writing for the majority, the US Supreme Court sided with Coy A. Koontz Sr. against a Florida water management district. Koontz wanted to fill more than three acres of wetlands; the district wanted him to reduce the size of the project or spend money on any of a variety of wetlands-restoration projects. Koontz claimed that constituted a “taking”.
The decision will very likely encourage local government officials to avoid any discussion with developers related to permit conditions that, in the end, might have let both sides find common ground on building projects that are good for the community and environmentally sound. Rather than risk a lawsuit through an attempt at compromise, many municipalities will simply reject development applications outright — or, worse, accept development plans they shouldn’t.
The court in Koontz has cast the burden on the government to justify fees. Many communities impose development-impact fees on developers if, e.g., a proposed project would require expanding waste-disposal sites or building new ones. Now developers have a new legal tool to challenge such charges.
JJS: Why shouldn’t an owner develop hers land? How else can s/he profit from it? Except by selling to some other developer? In today’s world, those are the owner’s only choices. And taking them away, obviously, proves difficult.
What society needs to do instead is to create a systemically new way to profit from land. What would that look like? Like this. Instead of an owner only getting the profit only from hers site, all the residents in the region would get an equal share from all the value of all the sites. Residents would pay in land dues, but get back “rent” shares from all the dues paid in by owners of land. Homeowners, farmers, shop owners, factory owners, forest owners, mine owners, holders of licenses to frequencies in the EM spectrum, people letting their pollutants loose into the environment, and many others would all pay dues for claiming or owning or using some part of the natural world. It’s a lot of money and it’d be dividend among the residents in the region.
So, instead of profit from hers building and hers location, one would profit from one’s building and from all the locations in the region. Because land dues drive down land prices, and mortgages would be smaller, many landowners might actually come out ahead in this geonomic system. Even if not, they’d come close, and the natural world would be much better off, a boon to all living things.
At Least the Administration Got Rent from 18 Sellers
by Vinod Kumar
The Union Territory (UT) excise and taxation department is yet to recover Rs. 50 lakh as ground rent from the owners of 10 liquor vends that were operating from pre-fabricated structures on roadsides.
While owners of 18 of the liquor vends have paid the rent, the remaining 10 are yet to pay some or all installments of the nearly Rs. 70,000-a-month rent to the UT.
The land for the pre-fabricated structures was provided by the UT engineering department on the roadside near roundabouts and red lights in various sectors of the city, which was earmarked for future expansion of roads.
There were 28 liquor vends in the city until they were forced to close shop on May 1 this year on the directions of the Punjab and Haryana high court (HC).
The court ruled that allotment of the land to successful bidders of liquor vends by private negotiation was in violation of Section 3 of the Excise Act and also in violation of Article 14 of the Constitution.
The HC direction had come as a blow to the UT administration. Pre-fabricated vends have been a major source of revenue. The department is expected to lose around Rs. 80 crore in revenue.
Last year, the site for a pre-fabricated vend in Sector 52 had fetched a bid of whopping Rs. 4.25 crore against the reserved price of Rs. 3.3 crore. Another such site at Behlana village was also auctioned for Rs. 4.25 crore.
JJS: At least some government recover the socially-generated value of land. It might not get all the rent. It might not get it from the right users. And it might not get it for the right uses. But at least the principle of “reap as you sew”, of public recovery of publicly-generated value, is upheld.
Chinese authorities have given courts the powers to hand down the death penalty in serious pollution cases, the government tries to assuage growing public anger at environmental desecration.
“All force should be mobilised to uncover law-breaking clues of environmental pollution in a timely way,” it added.
Previous promises to tackle China’s pollution crisis have had mixed results, and enforcement has been a problem at the local level, where governments often heavily rely on tax receipts from polluting industries under their jurisdiction.
Protests over pollution have unnerved the stability-obsessed ruling Communist Party.
Thousands of people took to the streets in the southwestern city of Kunming last month to protest against the planned production of a chemical at a refinery.
Severe air pollution in Beijing and large parts of northern China this winter have added to the sense of unease among the population.
Human rights groups say China executes thousands of people a year, more than all other countries combined. The death penalty is often imposed for corruption and other economic crimes.
JJS: While killing offenders is a bit over the top, at least the national government is killing people in power, and not just poor people into drugs. Note the local governments tolerate the contamination (and killing) of their populace in exchange for money, for taxes. Therein lies a solution. Rather than tax an industry’s output or profit, government should tax everyone’s unwanted byproducts (pollution) and location. The cleaner the location, the higher its value, and the revenue for both the user and the local rent-collecting government. It’s geonomics and it works.
David Ricardo was right: land, or location, does gobble up the increase in wealth. This 2013 excerpt is from the Daily Mail, June 18.
by Damien Gayle
With just two bedrooms and a single bathroom spread over its modest 960 sq/ft living space, this unprepossessing 70-year-old bungalow in Mountain View, California, is on the market for a wallet-busting $1.1million (£700,000).
The reason? It’s less than ten minutes’ drive from the headquarters of online search and advertising giant Google.
Just an average middle-class American suburb… The area’s property prices have risen in line with tech stocks.
What potential buyers will be paying for is the privilege of living in Mountain View.
Google is reputed to lead the pack in doling out the big bucks to its software engineers and designers, with even interns earning a massive $6,000 a month.
High prices aren’t a problem if you’re a well-to-do software engineer, but for the rest of humanity, you’re suddenly priced out.
According to the Wikipedia entry, “Einstellung refers to a person’s predisposition to solve a given problem in a specific manner even though ‘better’ or more appropriate methods of solving the problem exist.” The word means “installation” or “attitude” in German. Einstellungers repeat a solution even when it is not optimal.
The Einstellung effect is a failure to use lateral reasoning. One can think of deductive reasoning as going vertically from premises down to a conclusion. One can think of inductive reasoning as also vertical but from observations and facts up to a generalization. In lateral thinking, one examines the premises to determine whether they are complete or appropriate.
The Einstellung actor does not examine the completeness of his method. He thinks the method worked in the past, and in this similar situation, it will most likely work again, or else, that is the only solution he knows. He does not search for alternative methods. It is not so much that the Einstellunger is lazy, but that he has been trained and conditioned to think only along particular pathways.
Einstellungheit is particularly dangerous in economic policy. In confronting a depressed economy, the tendency of Einstellungish economists is to repeat the remedies they learned in school, without thinking laterally about alternatives.
The two remedies to economic depression are demand-side and supply-side. Demand-side policy seeks to increase overall or aggregate demand. The conventional methods are monetary and fiscal stimulus. The monetary stimulus expands the money supply to drive down interest rates. That is the policy followed by central banks such as the Federal Reserve system.
The Fed’s monetary expansions of 2009-2013 have failed to stimulate high growth. If regulatory restrictions and fear of bad loans prevent the banks from loaning out the funds, they will buy safer treasury bonds or guaranteed mortgage-backed securities. When the banks do loan out the funds, the stimulus gets misdirected into real estate purchases that later become a bubble that crashes, as happened when interest rates were pushed down after 2001. The cheap credit generated by monetary expansion distorts investment and generates perverse land speculation.
The conventional fiscal thought of demand-side Einstellung is that the expansion of greater government spending will multiply into much greater output. The Einstellung view is that there is a spending multiplier based on the amount of income consumed rather than spent, so a billion dollars of spending results in several billion of greater income and output. The US has had deficit spending of hundreds of billion per year for the past several years, and there has been no multiplier. Japan experienced the same policy failure after its boom of the 1980s. Both monetary and fiscal expansion have failed to stimulate growth.
The other policy option is supply-side stimulus. Supply-side policy is based on the economic logic that greater profit generates greater investment, and government can increase profit by reducing the costs it previously put in. Conventional supply-side policy cuts taxes and reduces excessive regulations. But the dark side of the Einstellung supply side is that lower taxes without lower spending results in greater government deficits. That is what happened with the Reagan tax cuts of the 1980s, as the economy did grow, but greater military spending expanded the deficit as well. The Bush tax cuts after 2000 also generated greater governmental debt. Conventional policies have failed in Europe as well, as austerity measures shrink their economies while conventional stimulus increases deficits when debt is already excessive, pushing up interest rates, which then reduces investment and growth.
The supply-side logic is correct, but simply applying tax cuts fails to consider an alternative policy: a tax shift. The supply-side effect can be accomplished without increasing the deficit, by reducing market-hampering taxes on wages and enterprise, while increasing market-enhancing taxes on pollution and land values. A market-enhancing tax is actually a reduction of perverse subsidies.
Polluters get subsidized when they can shift the social cost to the general public rather than the customers who buy the products. A pollution tax makes the buyer pay the full social cost, eliminating the implicit subsidy. A tax on land value removes the implicit subsidy of higher rent and land value generated by government’s public goods. By removing subsidies, taxes on pollution and land value increase efficiency — they actually help the economy.
The concept of taxing pollution has been well known to economists since the 1920 publication of The Economics of Welfare by Arthur Pigou. The concept of tapping land rent for public revenue is ancient, and was analyzed and proposed by the French economists of the 1700s, by Adam Smith, by Henry George, by many other economists, and recently by the 27 June 2013 Economist magazine.
Why more economists do not advocate an efficiency tax shift, and why policy makers mostly ignore it, and why it is not popular among the public, is ultimately due to the Einstellung Effect. I leave it to psychologists to inform us as to how to overcome this psychological disability, although their own Einstellung may block this. But there have been movements that have overcome Einstellung inertia, such as for the abolition of slavery, women’s votes, and the civil rights movements. So Einstellung is not necessarily destiny.
An oligopoly is an industry in which there are only a few sellers. In some of the states of the USA, car dealers have a legal oligopoly on retail shops, as car makers are not allowed to sell directly to customers.
This oligopoly reduces the ability of new car makers, such as Tesla, to sell its cars. According to a study by Gerald Bodisch, based on an average vehicle price of $26,000, the total cost reduction for a direct sale by the car maker has been estimated as $2,225 or about 8.6%. The Tesla electric car is, at present, rather expensive, selling for $70,000 if sold directly to buyers. But if Tesla has to operate through local car dealers, their car sells for thousands of dollars more.
In the early days of car making, selling through dealerships offered benefits to manufacturers. The franchise system allowed car makers to concentrate their resources in production, while earning franchise fees from independent retail sellers. But now, the Internet has reduced some of the beneficial aspects of the franchise system for manufacturers, as reviews and other information provided by local dealers has become readily available on web sites.
A political battle is now occurring in state legislatures between Tesla and the franchised dealers. It does not matter whether the Republican or the Democratic party controls the legislature, as the dealers contribute campaign funds to both parties to keep their franchise privilege.
State franchise laws were enacted in the early days of the automobile, when Henry Ford was cranking out cars. Now, intermediaries such as retail stores are coming under increasing competition as the Internet enables many producers to sell directly to the public. People can also buy from mass sellers such as Amazon.com and QVC at web sites or by telephone for less than they would at a store. Package deliverers have gotten much more business.
Technological improvements drive a market economy towards better and cheaper goods. Old methods such as riding horses get replaced by new ones such as the automobile. Electronic readers are now substitutes for paper-based books. The Dell company pioneered the direct manufacturer distribution of computers, which reduced inventory costs. The Austrian-school economist Joseph Schumpeter called the dynamics of new goods and methods replacing old ones “creative destruction,” although it is better called “creative reconstruction.” But progress is blocked when governments protect the old ways from creative reconstruction.
Car dealers fear that if Tesla can sell directly to customers from company-owned stores, then other car makers will do so also. There are 48 US states that have laws restricting car dealerships. However, according to an article in the 18 June 2013 Wall Street Journal, Tesla may have company-owned stores in California, the District of Columbia, Florida, Illinois, Massachusetts, New Jersey, New York, Pennsylvania, and Washington. Tesla may only own one store outlet in Colorado and Oregon.
Tesla may operate galleries in Arizona, Texas, and Virginia, where one may look but not test drive or buy. In Texas, the gallery may not inform a customer of the price of the car, and they may not even give out the Tesla web site address, which is silly, because one can easily look it up. Tesla may not own stores or galleries in the other states. In those states, a customer may order a car by telephone or from a web site, but most car buyers want to physically examine a car and have a test drive. Arizona even prohibits manufacturers from selling not only vehicles, but also parts, services, and financing directly to consumers.
Legislation may become even more restrictive, as, for example, legislation has been proposed in New York state not only prohibiting direct sales by Tesla, but also prohibiting the cars bought in other states from being registered in New York.
There are also federal laws regulating car dealerships, such as the 1956 Automobile Dealers’ Day in Court Act (Federal Automobile Dealers’ Franchise Act), 15 U.S.C. §1221-25, by which dealers may sue automobile manufacturers in federal court for damages if a manufacturer terminates or does not renew its dealers’ franchises. The courts have upheld state statutes that prevent manufacturers from selling vehicles directly to consumers. The National Automobile Dealers Association has vowed to vigorously defend their franchises against any attempt by the Tesla company to have federal legislation that overturns the state restrictions.
NADA claims that if manufacturers sell directly and will not let independent dealers sell, this would reduce competition. However, they do not advocate a law that would let the car makers sell and also prevent the car makers from excluding other sellers.
A major reason why local governments are allies of the car dealers in keeping their monopoly privilege is the sales tax. The sale of cars generates much of the sales tax revenues that the state and local governments depend on. The car dealers contribute campaign funds to local candidates to influence them to be in favor of keeping the oligopoly privileges. Company-owned retail outlets would also pay sales taxes, but the lobbying power by existing dealers is greater than that of start-up firms such as Tesla.
The DeLorean car of the 1970s sold cars via dealerships that invested in the company and became shareholders. But such a strategy does not provide the cost savings of direct sales.
Automobile entrepreneurs are seeking to produce cars that pollute less and are more energy efficient, but progress will be blocked if government prohibits cost savings such as direct sales by manufacturers.
Mike Ramsey and Valerie Bauerlein. “Tesla Clashes With Car Dealers,” 18 June 2013 Wall Street Journal, pp. B1 – B2.
“Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers” by Gerald R. Bodisch, May 2009 (http://www.justice.gov/atr/public/eag/246374.htm)
Unlike wind and solar generators, biomass burners must buy fuel. This is already putting pressure on prices for other wood users, such as builders, cabinet-makers and, we should admit, magazines that are still printed on paper. It also increases reliance on imports—one of the things that renewables are often claimed to reduce.
Biomass claims to be a “carbon neutral” way of generating power: although burning wood puts carbon dioxide into the atmosphere, growing replacement wood sucks that carbon dioxide back out. But the ideal of a biomass plantation that is harvested only at the rate at which it grows back is not always met. Even when it is, such plantations displace other ecosystems that would themselves have sucked down carbon. Processing and transporting the wood to the place where it is burned requires energy that may well come from non-renewable sources. Some biomass programmes could end up emitting more carbon than the fossil fuels they are being subsidised to replace.
Moving to an ever-lower-carbon economy at a deliberate pace is a good idea. The best way to do it is to set a carbon tax and let the market decide the cheapest, cleanest answer while researching future alternatives. Some renewable technologies would play a big role in that.
JJS: Abolishing subsides is one (1) needed step of four. The other three are to (2) axe taxes on our efforts, (3) use fees and dues to recover the socially-generated rental values of land and resources, and, crucially, (4) disburse the surplus to citizens as a dividend. Taking all four steps will solve the dirty energy problem. No subsidies for fossil fuels. No taxes on workers who weatherize buildings, and none on profits from new inventions. Plus an extra income so people can work flexibly, putting an end to rush hour, one of our most wasteful social bad habits. But first, people must think big picture and become familiar with geonomics.
Africa is rapidly developing its electricity infrastructure. An exhibition and conference on “Africa Electricity” takes place in October 2013, and Power-Gen Africa takes place in March 2014, both in South Africa. President Obama’s called for more investment in his recent excursion in Africa. Obama proposed a $7 billion program, mostly as Export-Import Bank export credits, to upgrade electric power systems in several African countries. Much investment is already taking place, including financing from Japanese banks and projects by Chinese companies.
More than half of the African population still lacks access to electricity grids. The cost of providing electricity to all of Africa has been estimated at $300 billion. The help provided by US and other countries is small compared to the total needed. Africans are already spending over $45 billion per year in infrastructure, according to the World Bank, much of it to expand the power supply.
Unfortunately, Africans have not learned the economic lessons of past infrastructure booms. When electricity is generated, something else is generated: greater rent. Higher rent is a byproduct of greater productivity.
In the German territories obtained in Africa during the latter 1800s, development in roads and harbors was accompanied by land speculation. Much of the gains from economic development were captured by the owners of the land. But this did not happen in the German colony of Kiaochow in China.
The Imperial Commissioner for Kiaochow, Ludwig Wilhelm Schrameier, was a member of the German Land Reformers. At the founding of the colony in 1898, Schrameier established a land-value tax of six percent. The collection of the rent not only served as the source of government revenue, but successfully prevented land speculation as the capital Tsingtao (Qingdao) developed into a modern city.
The electrification of Africa will greatly increase production, and that will benefit families as well as enterprise. However, families and enterprises which seek to rent or buy land will have to pay higher prices. Africans will benefit from the electricity, but much of the gains, the “surplus” of the economy, will go to landowners who, in that role, contribute nothing towards the developments that generate the added rent.
Foreigners are now buying up much of the best land in Africa. In many cases, the traditional subsistence farmers are forced to leave, replaced by commercial agriculture for export. Since the non-African owners pay little rent to the local communities or national governments, they will reap much of the harvest from economic development.
The development of electrical power in Africa will benefit from coordination with NEPAD, the New Partnership for African Development. As stated in its web site, NEPAD provides an “African Union strategic framework for pan-African socio-economic development.”
“NEPAD was adopted by African Heads of State and Government of the OAU in 2001 and was ratified by the African Union (AU) in 2002 to address Africa’s development problems within a new paradigm. NEPAD’s main objectives are to reduce poverty, put Africa on a sustainable development path, halt the marginalization of Africa, and empower women.”
Development projects such as NEPAD need to confront the central issues of governance, land tenure and public finance. Taxes and trade barriers are hindering development. The best action NEPAD could take is to promote the equalization of the benefits from development, and at the same time, promote rapid growth, by replacing current taxes with public revenue from land rent. Otherwise, growth will not eliminate poverty as Africans pay twice for electricity: first in their utility bill, and secondly from paying higher rent to the landlord.
Although there are more poor people living in suburbs, the percentage of people living in poverty increased only slightly. While the number of poor people in suburban areas now outstrips those in urban centers, the average U.S. suburb still has a much smaller percentage of its people living in poverty — 12% — than the urban average of 22%.
JJS: People move around but political borders don’t. Perhaps cities and surrounding counties should merge into one regional government, like the ancient Greek polis or the contemporary Russian oblast. There’s little reason for maintaining many little overlapping and competing local governments within a regional economic unit (or within a bioregion).
The economic effects of a large population is felt not just in the city but throughout the entire region. For instance, cities like Boston and San Francisco don’t cover much surface area but are compact and dense and pull up land values all through the region. Why have a border cut through an otherwise unified region?
Since the social generation of site value is a regional phenomenon, it should be a regional government that collects land dues (or land taxes) and disburses “rent” dividends to regional residents. Getting a dividend solves the poverty problem. Doing the sharing on a regional basis resolves any jurisdictional issues.
Over the years, some groups have won breaks that allow them to pay no tax, or a lesser rate.
Manufacturers, for example, pay a 1 percent tax on equipment purchases that is capped at $80. Utilities can sell to businesses and residences at a reduced rate of 3 percent. Many charitable nonprofits, including hospitals, pay little or no sales tax.
Loggers, computer software makers, NASCAR racing teams and some air carriers avoid at least some of the sales tax on some of their purchases. Newspapers and broadcasters escape sales taxes on some of their purchases.
Each time the state raises its sales tax on goods, it does so on a shrinking base, getting less and less revenue over time. The state’s economy has flipped from two-thirds goods and one-third services to one-third goods and two-thirds services.
Two beneficiaries of exemptions gave $100,000 a piece to candidate, well above the $4,000 maximum, but no charges were filed because the contributions weren’t discovered until after a two-year statute of limitations had expired.
In 1620 the Mayflower landed at Plymouth Rock with its intrepid band, and supplies and provisions for the first winter. These Pilgrims were of the working poor, ready and able to turn their hands to labor. They had carpenters, masons, joiners, bakers, farmers, chandlers, boatsmen, fishers, hunters, and other useful types. They knew enough physick to stay healthy. Brewster could preach, Standish drill and shoot, Bradford write and govern, John Alden speak. The women could cook and sew and wash and harvest and peel and all those workwomanlike things. All stood as one in faith and purpose, giving mutual aid, but owning and trading goods too, knowing the arts of bargaining, the power of self-interest and the usages of the market. They never ate the seed corn, but consumed little, storing up capital to make tools and provision their winters. By Christian humility and fair dealing they made friends of the neighbors, and wasted little on vain warfare.
Yet all their hard work and frugality and mutual aid and shrewd trading availed them nought, God did not prosper their ventures. Poverty and distress prevailed; crops withered; timbers rotted; stores spoiled; women sued for divorce; discontent ran riot. The Elders pondered.
As luck would have it, one bachelor had packed along a book on Political Economy for the lonely evenings. Studying one night he suddenly cried “Eureka! Political Economy will save us!”
“What! What could it be?” cried the Elders all together. “Tell us, prithee, before the vision leaveth!”
“You forgot the most important thing: you forgot to bring a landlord!”
The Elders were puzzled. “Of what use is a landlord?” said one boldly. “God already put the land here.”
“Obviously,” said the bachelor, “you never studied Political Economy. You think working, saving, building and trading make an economy? Ha! It is not enough for land simply to be: it must be supplied. Landlords supply land.”
“But how have we survived thus far, then?” asked another Elder, a bit awed. The bachelor turned some pages. “By non-land activities,” he declared, “like trading, fishing and woodworking. Political Economy is so clear. Land is not essential to those, or to the housing we have. If you want to make it in farming, however, you must have a landlord.”
“Can’t we be our own landlords?” asked another. “That will hardly do,” said the scholar, standing taller. “It is a skilled specialty. Landlords don’t just supply land, they allocate it. They bear the financial burdens of ownership: carrying title, lending to tenants who can’t make the rent, that sort of thing don’t you know.
“They hold land and provide the service of ‘waiting’ while it ripens into higher uses. They collect rent, a most onerous burden; they help young tenants get started on the agricultural ladder; they pledge land for loans and undergird our financial structure. They invest in land, and you know how vital investment is to an economy; they reap increments to value, lest these go to waste; they sell land and raise capital to buy more land: lots of difficult things like that.
“You can see supplying these services calls for special skill and acumen since you don’t understand them, do you?” The Elders didn’t, and the point was made. A New England without landlords? What self-willed fools they had been!
They straightway did God’s will, as revealed by Political Economy. They sent to England for the missing specialist and, by God’s grace found one. This charitable soul took on the grievous burden of ownership; he also served by collecting rent. He supplied, allocated and withheld ripening land, and helped young tenants get started. He borrowed on rising land values to invest in more land, whose sellers invested in more land, sending out shock-waves of induced investment. He even saved them the cost of a passage, for he did all this from a bar in Piccadilly.
The newly dynamic economy expanded: it had to, because the landlord was allocating most of its land into higher uses yet to come. The emigrants founded new colonies patterned on the original, in this way leapfrogging outwards and – Excelsior! – upwards to the bracing mountainsides. The Elders were embarrassed, however, at their original error. To distract the people they declared a Thanksgiving, which we still celebrate. The true story has been suppressed to this day.
Somewhat later Americans shamefully regressed from those true principles, causing President Andrew Jackson to offend God by solemnizing Thanksgiving in 1835 with prideful boasting:
“We thank Thee for the bountiful supply of wild life with which Thou has blessed our land; … deer, antelopes and buffaloes that roam the boundless plains … We thank Thee for the burning rock recently discovered in the wilds of Pennsylvania which, added to the water power of New England, will materially reduce the burden of manual labor … We thank Thee for the absence of unemployment which in the King-ridden countries of the world is causing widespread suffering among the toiling masses and has led to riots …
And if the time should ever come … when our … industries can no longer employ all the labor tendered, our public domain of thousands of millions of acres of virgin soil will offer them welcome sustenance and fortune so that no willing worker shall ever be begging for bread …
“And finally, we thank Thee for (this, that) thanks to the blessings … enumerated, there will be none to freeze, starve, or be beset by the fear of want this winter or the winters yet to come.”
Fortunately, in our own times, changes have been made. We have rediscovered political economy, given more favor to landlords, and are no longer cursed with the kind of labor shortage that distressed employers at the time of Jackson.
Just three states hold a near monopoly over the US national election until Americans demand justice. We trim, blend, and append two 2012 articles from (1) Salon, Nov 5, on the Electoral College by A. Pareene and (2) Harper’s, Oct 19, on MONOPOLY by C. Ketcham.
by Alex Pareene and by Christopher Ketcham
The best argument for finally ridding ourselves of the Electoral College is that it assigns far too weighty a responsibility to states that are mostly run by asses.
This particular election has come down to three states: Florida, Virginia and Ohio. Mostly Ohio. Ohio is in the post-industrial Midwest. Florida is full of lunatics and run by criminals. Virginia might elect George Allen again. This is no way to run a country.
Thanks to the Electoral College, and our bizarre system of assigning electoral votes, and our easily demogogued system of determining who gets to vote, and when, and how, the minority of voters who show up to vote in midterms and off-year elections choose the men who control the ballots and the polling places, and those men do everything they can to ensure that people have a hard time of it.
(It’s depressingly rare that presidential elections end up riding primarily on the results in states with pristine histories of clean and fair elections.
At least this year the important states are rather large. But not as much as New York, California, and Texas.
We already have a form of government that heavily favors rural areas and small states — the next senator from the state of Nebraska will effectively have veto power over all the priorities of every member of California’s entire congressional delegation — and yet we wonder why Americans, especially young ones, are so apathetic about actually voting.
Let’s abolish the Electoral College, please. Then we can work on abolishing the Senate, expanding the House, instituting ranked or runoff voting nationwide, and establishing simple national suffrage. Seriously, will some centrist billionaire throw money at those things, please.
JJS: If Americans are to actually live in a democracy, major reforms are needed. However, do bear in mind that political power usually come from economic power, and that usually comes from privilege, so the two reinforce each other, forever, until we do something about it. Over a century ago a Quaker tried to do something about it by inventing an instructional board game.
Monopoly Is Theft
The board game’s true origins go unmentioned in the official literature. Three decades before Darrow’s patent, in 1903, a Maryland actress named Lizzie Magie created a proto-Monopoly as a tool for teaching the philosophy of Henry George, a nineteenth-century writer who had popularized the notion that no single person could claim to “own” land in his book Progress and Poverty (1879).
The players could vote to do something not officially allowed in Monopoly: cooperate. Under this alternative rule set, they would pay land rent not to a property’s title holder but into a common pot—the rent effectively socialized so that, as Magie later wrote, “Prosperity is achieved.”
Shared freely as an invention in the public domain, as much a part of the cultural commons as chess or checkers, The Landlord’s Game was, in effect, the property of anyone who learned how to play it.
Before being monopolized by a single person working in tandem with a corporation, Monopoly had in fact been “invented” by many people—not just Magie and the Raifords but also the unknown player who gave the game its moniker and the unsung Ardenite who had perhaps aided Magie in advancing its rules. The game that today stresses the ruthlessness of the individual and defines victory as the impoverishment of others was the product of communal labor.
Robert Barton, the former president of Parker Brothers who was pivotal in helping Darrow secure a patent for his “invention,” admitted under oath that he was fully aware of the game’s history and that he knew Darrow had not in fact invented it.
JJS: The true story of MONOPOLY is repeated periodically in the mainstream press, then conveyed to these pages. The key, as Henry George noted, is not so much who owns the land but who gets the rent. Now in America with a large middleclass, many families own some land (under their homes) but the lion’s share of the rent for their location is captured by banks via mortgages. The way to prevent that is for owners to pay land dues to their community, leaving no site rent available to be capitalized into price, thence into mortgages. If the community pays rent dividends to its residents, then owners won’t lose but gain.
Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .
After the financial crisis, the rush for natural gas “rents” was one of the few major profit centers for Wall Street deal makers, who found willing takers among energy companies and foreign financial investors — many of whom are now licking their wounds. This 2012 article is from the New York Times, Oct 20.
by Clifford Krauss & Eric Lipton
The nation is awash in so much natural gas that electric utilities, which burn the fuel in many generating plants, have curbed rate increases and switched more capacity to gas from coal, a dirtier fossil fuel.
Companies and municipalities are deploying thousands of new gas-powered trucks and buses, curbing noxious diesel fumes, and reducing the nation’s reliance on imported oil.
And companies like fertilizer, plastic, and chemical makers, which use gas as a raw material, are suddenly finding that the United States is an attractive place to put new factories, compared with, say, Asia, where gas is four times the price.
But while the gas rush has benefited most Americans, it’s been a money loser so far for many of the gas exploration companies and their tens of thousands of investors.
The drillers punched so many holes and extracted so much gas through hydraulic fracturing that they have driven the price of natural gas to near-record lows. Warm weather last winter exacerbated the glut to historic levels, reducing prices even further, since so little gas was needed to heat homes in many parts of the nation.
Because of the intricate financial deals and leasing arrangements that many of drillers struck during the boom, they were unable to pull their foot off the accelerator fast enough to avoid a crash in the price of natural gas, which is down more than 60 percent since the summer of 2008.
Although the bankers made a lot of money from the deal making and a handful of energy companies made fortunes by exiting at the market’s peak, most of the industry has been bloodied — forced to sell assets, take huge write-offs and shift as many drill rigs as possible from gas exploration to oil, whose price has held up much better.
Big companies like Chesapeake and lesser-known outfits like Quicksilver Resources and Exco Resources were able to supercharge their growth with the global financing.
In China, a senior executive at a major Chinese oil company explained that the country wanted to move as much as $750 billion from United States Treasury bonds into the North American energy business.
In all, the top 50 oil and gas companies raised and spent an annual average of $126 billion over the last six years on drilling, land acquisition, and other capital costs within the United States, double their capital spending as of 2005.
Chesapeake spent an average of $7,100 an acre on the drilling sites it had leased in the Haynesville. Lesser-known Plains Exploration and Production paid Chesapeake the equivalent of $30,000 an acre. Wheelers-and-dealers involved in arranging the deal made an estimated $23 million on this transaction.
It wasn’t just the cash-and-carry deals that were forcing them to drill. The land that the natural gas companies had leased, in most cases, came with “use it or lose it” clauses that required them to start drilling within three years and begin paying royalties to the landowners or lose the leases.
Exco, Chesapeake and others initially boasted about how many acres they had managed to lock up. But after paying bonuses of up to $20,000 an acre to the landowners, the companies could not afford to lose the leases, even if the low price of natural gas meant that drilling more wells was a losing proposition.
The industry was also driven to keep drilling because of the perverse way that Wall Street values oil and gas companies. Analysts rate drillers on their so-called proven reserves, an estimate of how much oil and gas they have in the ground. Simply by drilling a single well, they could then count as part of their reserves nearby future well sites. In this case, higher reserves generally led to a higher stock price, even though some of the companies were losing money each quarter and piling up billions of dollars in debt.
Now the gas companies are committed to spending far more to produce gas than they can earn selling it. Their stock prices and debt ratings have been hammered.
Just as in the earlier real estate bubble, the main players publicly predicted success even as, privately, their doubts were growing, court documents show.
Aubrey K. McClendon, chief executive of Chesapeake Energy, suggested in August 2008 to Wall Street analysts that he had fundamentally transformed the once-risky, century-old oil and gas business into something with the reliability of an assembly line. “We consider ourselves to be in the gas manufacturing business, and that requires four inputs in our opinion — those inputs are land, people, science and, of course, capital.” [His inputs cover the major ones in classical economics.]
But in an October 2008 e-mail that has since become public in a lawsuit against Chesapeake, he wrote that the company might have made some big mistakes. “What was a fair price 90 days ago for a lease is now overpriced by a factor of at least 2x given the dramatic worsening of the natural gas and financial markets.”
Ralph Eads III, McClendon’s fraternity buddy from Duke who had become his go-to banker, helped arrange what will go down as one of the great early paydays of the shale revolution: the 2010 sale of East Resources, which his associate Terry Pegula had started with $7,500 borrowed from family and friends, to Royal Dutch Shell for $4.7 billion.
There were a handful of other such profit takers, including the Houston businessman Floyd Wilson, who created a company in 2003 called Petrohawk Energy with the intention from the start of selling it. Petrohawk drilled its first Haynesville well in 2008. Last year, it sold itself to an Australian energy conglomerate, BHP Billiton, in a $15 billion deal that brought Mr. Wilson and other executives a payout worth at least $304 million.
But for many gas drillers, there has been only pain. In hindsight, it should have been clear to everyone that a bust was likely to occur, with so many new wells being drilled and so much money financing them. But everyone was too busy working out new deals to pay much heed.
The bust has hit the Haynesville hard. Some local landowners, having spent their initial lease bonuses, are now deeply in debt. Local restaurants and other businesses are suffering steep losses now that so many drillers have left town.
JJS: Loud mouth, glad-handing salesmen will always be able to reap a fortune whenever there’s a fast flow of unearned cash available for the plucking. But the billions spent for fossil fuels — part of Mother Nature — is not legitimately the property of just a few wheelers and dealers. Instead, it is a revenue stream we should all share in, while forgetting about taxing the incomes that we do earn.
Interestingly, some public jurisdictions do already recover some of the worth of Mother Earth, some land value. See “Projects Approved For Orlando Executive Airport” in Aviation News, Oct 18; “Ground rent to Orlando Executive Airport from Microtel will amount to $330,585 over the first five years of the lease agreement. Ground rent for the GFS store will be $554,085 for the first five years of the lease agreement. The ground rent for the Wawa Food Market and gas station will be $605,920 over the first five years of the agreement.” To read more .
Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .
a scientific look at how we divvy up the work and the wealth, how some of us end up with too much or too little effort or reward. That’s partly due to Ricardo’s Law of Rent, showing how wasteful use of Earth cuts wages. And it’s partly due to how a society’s elite runs government around like water boys, dishing out subsidies and tax breaks. While geonomists look political reality right in the eye, without blinking, conventional economists flinch. When Paul Volcker, ex-chief of the Federal Reserve, moved on to a cushy professorship at Princeton cum book contract, the crush of deadlines bore down. So Volcker asked a junior associate to help with the book. The guy refused, explaining that giving serious consideration to policy would ruin his academic career. The ex-Fed chief couldn’t believe it and asked the department chair if truly that were the case. That head honcho pondered the question then replied no, not if he only does it once. And economics was AKA political economy!
a new field of study offered in place of economics, as astronomy replaced astrology and chemistry replaced alchemy. Conventional economics, in which GNP can do well while people suffer, is a bit too superstitious for my renaissance upbringing. If I’m to propitiate unseen forces, it won’t be inflation or “the market”; let it be theEgyptian cat goddess. At least then we’d have fewer rats. Meanwhile, believing in reason leads to a new policy, also christened geonomics. That’s the proposal to share (a kind of management, the “nomics” part) the worth of Mother Earth (the “geo” part). If our economies are to work right, people need to see prices that tell the truth. Now taxes and subsidies distort prices, tricking people into squandering the planet. Using land dues and rent dividends instead lets prices be precise, guiding people to get more from less and thereby shrink their workweek. More free time ought to make us happy enough to evolve beyond economics, except when nostalgic for superstition.
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 manual. The world did not come without a way for people to prosper, and the planet to heal and stay well; that way is geonomics. Economies are part of the ecosystem. Both generate surpluses and follow self-regulating feedback loops. A cycle like the Law of Supply and Demand is one of the economy’s on/off loops. Our spending for land and resources – things that nobody made and everybody needs – constitutes our society’s surplus. Those profits without production (remember, nobody produced Earth) can become our commonwealth. To share it, we could pay land dues in to the public treasury (wouldn’t oil companies love that?) and get rent dividends back, a la Alaska’s oil dividend. Doing so let’s us axe taxes and jettison subsidies. Taxes and subsidies distort price (the DNA of exchange), violate quid pro quo by benefiting the well-connected more than anyone else, reinforce hierarchy of state over citizen, and are costly to administer (you don’t really need so much bureaucracy, do you?). Conversely, land dues motivate people to not waste sites, resources, and the ecosystem while rent dividends motivate people to not waste themselves. Receiving this income supplement – a Citizens Dividend – people can invest in their favorite technology or outgrow being “economan” and shrink their overbearing workweek in order to enjoy more time with family, friends, community, and nature. Then in all that free time, maybe we could figure out just what we are here for.
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.
the study of the money we spend on the nature we use. When we pay that money to private owners, we reward both speculation and over-extraction. Robert Kiyosaki’s bestseller, Rich Dad’s Prophecy, says, “One of the reasons McDonald’s is such a rich company is not because it sells a lot of burgers but because it owns the land at some of the best intersections in the world. The main reason Kim and I invest in such properties is to own the land at the corner of the intersection. (p 200) My real estate advisor states that the rich either made their money in real estate or hold their money in real estate.” (p 141, via Greg Young) When government recovers the rents for natural advantages for everyone, it can save citizens millions. Ben Sevack, Montreal steel manufacturer, tells us (August 12) that Alberta, by leasing oil & gas fields, recovers enough revenue to be the only province in Canada to get by without a sales tax and to levy a flat provincial income tax. While running for re-election, provincial Premier Ralph Klein proposes to abolish their income tax and promises to eliminate medical insurance premiums and use resource revenue to pay for all medical expense for seniors. After all this planned tax-cutting and greater expense, they still expect a large budget surplus. Even places without oil and gas have high site values in their downtowns, and high values in their utility franchises. Recover the values of locations and privileges, displace the harmful taxes on sales, salaries, and structures, then use the revenue to fund basic government and pay residents a dividend, and you have geonomics in action.
a 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.
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.
a way to have everybody pulling on the same end of the rope. Last summer’s expansive forest fires shed light on growing class resentment in the West. Old loggers and ranchers rankled at the new urgency to stamp out the blazes that threatened the recent Aspenesque settlers. The newcomers expected working class firemen to make protecting their expensive homes top priority. (Chr Sci Mntr, Spt 7) The tinder for this envy? Rich people moving in bid up the price of land, making it hard to afford by people on the margin. The fault really lies with our system of privatizing land value. If this rising value were collected by land dues and shared by rent dividends – the essence of geonomic policy – who’d complain? The more people move in, the higher the land value, and the fatter the dividend paid to residents. Then people on the margin might go out of their way to invite rich outsiders in.
the Great Green Tax Shift maxed out”
Economically, taxing pollution and depletion does reduce pollutants and extracts – and thus the tax base; plus such taxes are regressive, requiring a safety net. On the other hand, collecting site rent is progressive and generates a revenue surplus payable as a dividend to residents, which can serve as the safety net.
Environmentally, taxes on waste and extraction do not drive efficient use of land, as does getting site rent. Better settlement patterns do reduce extraction upstream and pollution downstream.
Politically, green fees have less impact if applied locally; local is where grassroots movements have more impact. Yet getting rent usually entails shifting the property tax (or charging user fees), the province of local jurisdictions; both mayors and city voters have been known to adopt a site-value tax.
Ethically, putting into practice “tax bads, not goods” skirts the issue of sharing Mother Earth which collecting rent confronts head on. Since nothing is fixed until it’s fixed right, ultimately, greens must lead humanity into geotopia where we all share the worth of Mother Earth.