Geonomist, #52 — 2006 Fall (Vol. 15, No. 2)
|September 21, 2006||Posted by Jeffery J. Smith under The Geonomist|
British business press pushes a land share
Geonomics is …
an alternative to conventional land trusts. Just as it seems some functions should not be left to the market – private courts and cops invite corruption (while private mediation is fine) – just so some land should not be left in the market. That said, sacred sites do not make much of a model for treating the vast acreage of land that we need to use. So the usual trust model, which is anti-use and counter-market, can not apply where it’s needed most. Trust proponents worry about ownership and control – two very human ambitions – but they’re not central. Supposedly, we the people own millions acres – acres that private corporations treat as private fiefdoms – and conversely, the Nature Conservancy owns wilderness the public can some places use as parks. So, the issue is not who owns but who gets the rent – ideally, all of us.
Ralph Borsodi years ago offered “trusterty” in place of property: 1, claim publicly, 2, occupy privately, 3, use sparingly, and 4, compensate mutually. Pay in according to your land’s value and get back a share equal to everyone else. It works better than relying on good intentions. Land trusts last until the idealists die out, or sooner if its site values are high. Those members turning against their trust should get those land values, but no greater share than anyone else in their society. That’s the principle so hard to get out and understood.
The Economist on housing
You’ve heard it here before, but now the mainstream is catching up (below and Paul Krugman inside). Their view of the future at last matches ours, yet their view of the past is still hazy, claiming the global boom in house prices has been driven by two common factors: historically low interest rates and stockmarket implosion making property an attractive alternative. While after the tech bubble burst the central banks did drop their rates down to near zero, it’s also true that home+site prices were due for a fall anyway. They have fallen roughly every 18 years, for nearly two centuries, ever since the Industrial Revolution really got kicking. Land cycle theorists predicted the coming crash ages ago. Even Bush’s ex-advisor, Greg Mankiw of Harvard, did – 17 years ago. Nevertheless, welcome The Economist (June 16), to the club; better late than never.
“The total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries’ combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America’s stockmarket bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history.
The glaring exceptions are Germany and Japan, where prices have been falling; Japanese property prices have dropped for 14 years in a row, by 40% from their peak in 1991.” Germany may have avoided a bubble because their banks require much more down payment than most others elsewhere. Japan’s real estate cycle is ahead of the West’s and rather than let their economy start a new phase, the government has let banks carry old losses as assets, keeping potential customers wary of borrowing from shaky lenders.
Going with the more popular trend, “home prices continue to rise by 10% or more in half of 20 studied countries. Over the past year, growth has reached 9% or more in Italy, Belgium, Denmark, and Sweden. Both France (15%) and Spain (15.5%) have faster house-price inflation than the United States. By contrast, some housing booms have now fizzled out. In Britain, house prices grew 20% in 2004 July but slowed to 5.5% in the year to May. In Australia, the 12-month rate hit 20% in late 2003 but stalled at only 0.4% in the first quarter of this year.
In many countries, house prices and rents are diverging. The ratio of prices to rents is a sort of price/earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier. House prices have hit record levels in relation to rents in New Zealand, France, the Netherlands, Ireland and Belgium. The ratio of prices to rents in America is 35% above its average level during 1975-2000 and 50% or more in Britain, Australia and Spain. House prices are also at record levels in relation to incomes in these nine countries. This suggests that homes are even more over-valued than at previous peaks, from which prices toppled.
After many previous house-price booms, most of the adjustment came through inflation pushing up rents and incomes, while home prices stayed broadly flat. Unlike share prices, house prices tend to be somewhat sticky downwards. As long as owner occupants can afford their mortgage payments, they will stay put until conditions improve.”
This time, prices were driven up not by need so much as speculation. “In America, 23% of all houses bought in 2004 were for investment, not owner-occupation and last year 42% of all first-time buyers and 25% of all buyers made no down-payment on their home purchase; in those states with the biggest price rises, adjustable-rate mortgages (ARMs), which leave the borrower exposed to rising interest rates, have risen to 50% of all mortgages.” When at last wanna-be buyers and renters can no longer afford the latest record prices – a point apparently now reached (British first-timers now account for only 29% of buyers, down from 50% in 1999) – over-exposed investors will sell. “House prices will not collapse overnight like stockmarkets, but over the next five years, several countries are likely to experience price falls of 20%.
Or more. The International Monetary Fund, analyzing house prices in 14 countries during 1970-2001, identified 20 examples of busts, when real prices fell by almost 30% on average (the fall in nominal prices was smaller). All but one of those housing busts led to a recession, with GDP after three years falling to an average of 8% below its previous growth trend. America was the only country to avoid a boom and bust during that period. This time it looks likely to join the club.” (via Bernard Rooney)
FROM THIS PEN’S PERCH
To geotopia in 60 secs.
Summer days might’ve been long but summer time was way too short; now where can one swim? Leaves already look eager to leave. Some fine fall day, strolling thru them, ankle deep, ponder what’s herein. Unlike past issues, this one has long articles, three of them: the first from The Economist echoing our timing on the coming crash, the second from The LA Times on the sorry state of my beloved oceans, and the last an exchange with a new member on the impact of geonomic reform. Humans often think that when things go wrong, we must respond with doing something wrong – drastic situations call for drastic measures – the assumption being that justice is impotent, a luxury reserved for when things are going right. But could the Creator have been so careless? To paraphrase Gandhi, there is no way to justice, justice is the way. There is no shortcut other than getting it right the first time. So the sooner we geonomize the earth, the better for all life. Merry Fall Equinox.
World’s richest increase
Half of the 20 richest people in China are in real estate; all have a net worth over a half billion dollars and work closely with government and state-owned banks. But in the capitol city of Beijing, 70% or the population cannot afford a mortgage on a home; protesters and boycotters receive death threats and death (The Wall St Journal, June 12). In 2005, the number of global millionaires — individuals with at least $1 million in cash and investments, beyond the value of their primary residence — rose 6.5% over 2004. The combined wealth of these wealthy jumped 8.5%. Global millionaires last year held a combined $33.3 trillion in wealth, nearly double the $16.6 trillion they held back in 1996, the first year researchers from Merrill Lynch and Capgemini began keeping track. Last year continues the wealth consolidation trend reported over the last 10 years. Those fortunates with at least $30 million in financial assets saw their ranks leap 10.2% to 85,400; they represent 1/100th of 1% of the world’s adult population. They hold 24% of the world’s financial wealth and own about one third of the combined wealth held by the world’s 8.7 million financial millionaires. (The newsletter Too Much, via Ed Dodson July 2) That’s not the product of hard work or good luck but of insider favors from friendly governments.
World’s priciest cities
Wealthy people from Europe, America, Asia, and especially the Middle East have pushed up prices, making London the new priciest city on the planet. In the old number one, New York, outsiders own a third of multi-million dollar residences; in London, they own just over half. In The Big Apple, prime real estate costs “only” $1,900 per square foot and super prime is $5,100; in the home of Apple Records, it’s now $2,300 and $5,715, respectively. A Middle East tycoon paid over $60 million for a home; one from India paid over $120 million. (The Olympian, Sept 3; via Meta Heller) Another survey, aimed not at owners of corporations but at their employees and which includes other items in the cost of living besides housing, places London fifth and New York tenth. The priciest city from their perspective is Moscow, trading places with Tokyo which dropped to third. Hong Kong, which exists on public land, is fourth while Beijing, China’s much bigger capital, is fourteenth. As wealthy expats pump up housing costs in top tier cities, so do well-paid working expats swell housing prices in all major capitals. (The Oregonian, June 26) Most governments try to tax the rich in their midst, but taxes often end up being counterproductive – except for the tax on site values. As long as you tax land, you don’t have to worry about capital fleeing anywhere.
Attack of The Blob – really
Giant jellyfish have been a problem for fishing and coastal communities on Japan’s west coast. For the first time, a mass of jellyfish blocked a filter in a seawater cooling system in a nuclear power plant in Japan, automatically shutting down the water intake system. The plant operators were forced to lower the output of its reactors until workers removed the jellyfish mass. (BBC News, July 20)
Mediterranean bathers were put on jellyfish alert this summer. The chances of encountering a jellyfish rose; concentrations of jellyfish were found at more than 10 per square metre in some areas off the Spanish coast. Some Spanish beaches were closed; Sicily and North Africa were also badly affected. As huge swarms of the creatures invaded coastal waters, at least 30,000 people were stung since summer began. Coastal waters were warmer than usual, because of the hot weather, and saltier than usual because of low river flows; the offshore waters which jellyfish usually inhabit were drawn in closer to the coast. And overfishing removes the jellyfish’s predators and its competitors from the sea. (BBC News, Aug 8)
The population of big fish has declined by 90% over the last 50 years. The global catch has been declining since the late 1980s. Humans are fishing down the food web. Fishermen first went after the largest, such as tuna, swordfish, cod, and grouper. When those stocks were depleted, they pursued smaller prey lower on the food chain. We are eating bait and moving on to jellyfish, already popular in China, and plankton.
Overfishing and destruction of wetlands have diminished the competing sea life and natural buffers that once held the microbes and weeds in check. Fish, corals, and marine mammals are dying while algae, bacteria, and jellyfish are growing unchecked; the rise of slime is returning the seas to their primeval state of hundreds of millions of years ago. The modern economy’s effluents – nitrogen, carbon, iron, and phosphorous compounds – curl out of smokestacks and tailpipes, rinse off fertilized lawns and cropland, seep out of septic tanks, and gush from sewer pipes into the sea. Modern industry and agriculture produce more fixed nitrogen — fertilizer, essentially — than all natural processes on land. These pollutants feed excessive growth of algae and bacteria.
* On Florida’s Gulf Coast, algae blooms are 10 times more abundant than they were 50 years ago. Toxins from these red tides have killed hundreds of sea mammals and caused emergency rooms to fill up with coastal residents suffering respiratory distress.
* Off the coast of Sweden each summer, blooms of cyanobacteria turn the Baltic Sea into a stinking, yellow-brown slush that locals call “rhubarb soup.” Dead fish bob in the surf. If people get too close, their eyes burn and they have trouble breathing.
* On the southern coast of Maui in the Hawaiian Islands, high tide leaves piles of green-brown algae that smell so foul condominium owners have hired a tractor driver to scrape them off the beach every morning.
* North of Venice, Italy, a sticky mixture of algae and bacteria collects on the Adriatic Sea in spring and summer. This white mucus washes ashore, fouling beaches, or congeals into submerged blobs, some bigger than a person.
* Excess algae has wiped out 80% of the corals in the Caribbean, despoiled two-thirds of the estuaries in the United States, and destroyed 75% of California’s kelp forests, once prime habitat for fish.
Toxins from the algae move through the food chain and concentrate in the dietary staples of marine mammals. The last 25 years has seen a steady upswing in beach strandings and mass die-offs of whales, dolphins, and other ocean mammals on US coasts. More than 14,000 seals, sea lions, and dolphins have landed sick or dead along the California shoreline in the last decade. So have more than 650 gray whales along the West Coast. In Maine two years ago, 800 harbor seals, all adults with no obvious injuries, washed up dead. In Florida, the carcasses of hundreds of manatees have been found in mangrove forests and on beaches. If the sea is not healthy for these sentinels, it won’t be good for us either.
Midway, an atoll halfway between North America and Japan, has no industrial centers, no fast-food joints with overflowing trash cans, and only a few dozen people. Albatross lay their eggs and hatch their young there each winter. The adults forage at sea and bring back food for their chicks and all manner of plastic debris, mistaking it for food. Albatross feed their chicks about 5 tons of plastic a year at Midway. Of the 500,000 albatross chicks born there each year, about 200,000 die, mostly from dehydration or starvation, their stomachs filled with plastic.
An estimated 1 million seabirds choke or get tangled in plastic nets or other debris every year. About 100,000 seals, sea lions, whales, dolphins, other marine mammals and sea turtles suffer the same fate. About four-fifths of marine trash comes from land, swept by wind or washed by rain off highways and city streets, down streams and rivers, and out to sea. The rest comes from ships. Much of it consists of synthetic floats and other gear that is jettisoned illegally to avoid the cost of proper disposal in port. (LA Times, July 30 – Aug 3)
As industrial activity pumps massive amounts of greenhouse gases, it alters the weather. The USA sweated this year through its hottest summer in 70 years, with temperatures not seen since the Dust Bowl of the 1930s. The continental USA had an average temperature of 74.5 degrees. It was the second-hottest summer temperature the government has recorded since it started keeping track in 1895. The only one warmer – by about two-tenths of a degree – was in 1936. (USA Today, Sept 14)
Atypical northerly breezes along the Oregon coast push out warm water, bringing up cool water lacking in oxygen. Each summer since 2002 it has turned water above the continental shelf into a dead zone, one of 150 dead zones worldwide. Oregon’s this year’s had the least oxygen ever measured here, a near complete absence, a situation rarely known in the world’s oceans. The layer was thicker and far larger, a 70 mile stretch, covering at least four times more area than in previous years. Undersea cameras aboard a research sub found thousands of dead crabs and starfish, and no living fish, carpeting the ocean floor. (The Oregonian, Aug 10)
One manmade greenhouse gas, carbon dioxide, is being absorbed by the oceans at a rate of nearly 1 million tons per hour – 10 times the natural rate. When carbon dioxide mixes with seawater, it creates carbonic acid, the weak acid in carbonated drinks. The seas are more acidic today than they have been in at least 650,000 years. Increased acidity reduces the abundance of calcium carbonate, which corals and other sea animals need to build shells and skeletons. It slows the growth of the animals within those shells. Even slightly acidified seawater is toxic to the eggs and larvae of some fish species. In others, including amberjack and halibut, it can cause heart attacks. It can asphyxiate animals that require a lot of oxygen, such as fast-swimming squid. It also melts away the bottom rungs of the food chain – tiny planktonic plants and animals that provide the basic nutrition for all living things in the sea – disrupting fisheries. Unharmed are algae, bacteria, and other primitive forms of life that are already proliferating. At the current rate of increase, by the end of this century ocean acidity will be 2 1/2 times what it was before the Industrial Revolution began 200 years ago.
What we allow to flow into the sea will come back to bite us. You can bet on it. (LA Times, July 30 – Aug 3) Want people to stop being careless, to start being careful? Talk money. Charge people for both their depletion and their pollution, not to mention for their exclusion, their private use of some portion of Earth. Charge people for what they take, not for what they make – remove taxes from earnings, enterprises, and buildings. From the revenue raised, pay people an equitable share. Coming from the earth’s worth, it’ll make sure people care about the earth’s health.
Oil again takes in billion$
A US official responsible for Gulf Coast oil leases says he was told in 1998 to remove a provision concerning royalties, an action that is allowing oil companies to avoid billions of dollars in payments (USA Today, Sept 14).
Exxon, the world’s most valuable company based on market value, reported a quarterly profit of $10.4 billion for the spring, 36% more than a year ago and just shy of its record $10.7 million posted in 2005 Q4. It has posted four of the five largest quarterly profits ever. ConocoPhillips reported $5.2 billion, a 65% jump. The six largest oil companies are expected to post more than $36 billion profit. Their 27.8% higher second-quarter earnings beats all nine other industry sectors except for utilities (28% estimated growth). Energy’s strong Q2 comes after 36.3% growth in the Q1, which topped every other industry. Roughly a third of the earnings growth for companies in the S&P 500 came from energy companies. The S&P 500 is expected to post 9.9% earnings growth in Q2, ending 16 consecutive quarters of double-digit earnings growth. (USA Today, July 28)
Oil and gas extractors as a group show much higher profits per employee than any other major industry. They receive something like 40% of all profits in the Fortune 500, with only 10% of the employees. High profits per employee are a sure indicator there is high surplus value generated not by business acumen but by high demand and low supply. (“A Severance Tax on California Oil?” by Mason Gaffney, July 2006)
Car taxes drive clients off
Taxes matter. To avoid them, people have chopped down fruit trees, boarded up windows, bricked up fireplaces (giving themselves pneumonia), and gone miles out of their way to rent a car. To pay for a new stadium (which get 94% of their financing from public subsidies), Kansas City decided to tax car rentals, believing visitors would pay. While they do, the other half of the market – local residents – give their business to rental offices out of the jurisdiction, going as far as five miles away to avoid a $4 per day charge. Cars rented by residents in the taxing jurisdiction fell by 41% and days rented by 69%, costing Kansas City thousands of dollars each month in lost tax revenue. To make up the shortfall, government usually levies another tax or fee. This increase in taxes, fees, and rates by local and state governments more than balances out the decrease in federal income taxes. This tax shift benefits most high-income earners and burdens most low-wage earners. (The New York Times, July 17) Of course, the extra complexity, collection costs, and injustice are not necessary. Society could lose all taxes and instead raise to full market value what it charges for the privileges it grants. For deeds to land, each year charge the annual rental value of the location. Do the same for leases to resources, licenses to the EM spectrum, franchises to utilities, liability limits to corporations, charters to banks, etc. You’ll have more than enough for government – enough for a dividend, too.
Making $160k, needing aid
People raking in up to $160,000 a year qualify for housing assistance in Santa Barbara CA. There a condo on the open market would cost $1,000,000. So a rich private charity, the Santa Barbara Foundation, is lending money for a project that will sell units at half market value. It’s to stem the erosion of the middle class, many of whom must commute from two hours away. (The Independent, Aug 31) Aspen CO, where vacant lots cost $1,000,000, had to do something similar. Whereas the Santa Barbara case uses tax-exempt charitable monies, Aspen uses funds raised mainly by a tax on property when it changes hands. Better than either band-aid would be to recover all the local site values then share them among resident voters. When site values rise, so would one’s share.
Inflation at 11-yr high
U.S. core consumer inflation matched an 11-year high back in June; for the third straight month it increased 0.2%. Core inflation, excluding food and energy, has risen 2.4% in the past 12 months, matching the largest year-over-year gain since the spring of 1995. Consumer prices including food and energy also rose 0.2% in June, and are up 3.5% in the past year. After adjusting for inflation, real consumer spending rose 0.2% in June, the fourth straight month of tepid spending. The Federal Reserve has raised interest rates 17 times in the past two years, ostensibly to curb inflation. (CBS MarketWatch, Aug 1). Yet over that period, inflation did not recede but quickened. Is that just coincidence? Or can it be that higher lending rates do not slow inflation but cause or worsen it? Actually, making debt more expensive can worsen inflation, but what causes it is the excess money lent into circulation. Reduce debt, and you’ll reverse inflation.
Jewelry fabrication fell by over 400 metric tons, or nearly 30%, with the biggest drops in India and the Mideast. After reaching a 26-year [sic] high in 2006′s first half, gold for December delivery fell five consecutive sessions, losing a cumulative $52.60, hitting its lowest level since June 19, as the US dollar gained against key currencies. Then prices climbed $2 to close at $588 an ounce on the New York Mercantile Exchange. As soon as the stock markets come undone, investors will push up the price of protective metals into the next range of highs and lows. (CBS MarketWatch, Sep 14)
NW housing peaking
Sandwiched between Seattle and California, Portland was supposed to follow the housing market, not lead it. Yet from June to July, when prices typically rise, Portland’s median home price fell from $280,000 to $274,700. Still, that was 14.5% over last July’s price. (The Oregonian, Aug 16) Statewide, from April-June 2005 to April-June 2006, home prices were more typical of the region. Led by towns close to ski slopes, Oregon rose 19.5%, the fourth highest jump of any state. In sixth place, Washington rose 17.4%. (The Oregonian, Sept 6) Having housing costs lower than California’s is why in a ranking of tech hubs, Seattle and Portland are near the top while the cradle, Silicon Valley, where less than 15% of homes are affordable by median computer professionals, is at the bottom (The Olympian, Sept 3, via Meta Heller).
Housing bubble losing air
From Q2 2005 to Q2 2006 in 26 metro areas, mainly in the rust belt, home prices fell – 10 more areas than in the first quarter (USA Today, Aug 16). Overall, home prices rose 1.17% from Q1, yet the gain was the smallest since the end of 1999. Last year’s Q2 gain was 3.65%; the difference is the biggest decline since 1975 when the government started keeping track of home prices. Still, home prices grew faster the last 12 months – by 10.06% – than did prices of other goods and services at 4.41%. From June, sales of new homes fell 4.3%, the largest drop since February; sales of previously owned homes fell 4.1% to a 2 1/2-year low. Unsold homes climbed to a 7.3-month supply, a 13-year high. (USA Today, Sept 5) Sales of new homes sales plunged 21.6% in July from twelve months ago. (CBS MarketWatch, Sept 2) In April-June, 12.2% of borrowers with adjustable loans, which reset up, were late paying their loans, the highest level since the end of 2003 (USA Today, Sept 14).
Banks & lenders at risk?
Since sellers and lenders pay them, most appraisers feel pressure to overstate the value of real estate. But when housing prices fall, both buyers and mortgage holders are left with an asset worth less than what’s owed. Owners can’t borrow against that, and banks see their shares lose value. (The Wall St Journal, July 22-23) The level of the banks’ exposure to real estate is unprecedented, representing close to 60% of their earnings either directly or indirectly. The extent to which cash-strapped homeowners have relied on debt and risky exotic options to finance both their mortgages and their consumption is also off the scale. Adjustable-rate mortgages, or ARMs, averaged roughly 30% of all first mortgage originations in 2005. In 2006, $330 billion worth of ARMs will adjust upward and $1 trillion worth will reset by the end of 2007.
Should home prices decline as they seem poised to do, many might end up owing more than the value of their homes; in case of foreclosure, they’ll leave the lender sitting on a real loss. (CBS MarketWatch, Sept 2) Paul Krugman (NYT, Aug 25): “This is a recipe for a major bust, not a soft landing. It could be both a deep and a prolonged bust. As far as I know, Nouriel Roubini is the only well-known [emphasis added] economist flatly predicting a housing-led recession in the coming year (we did, too, last year). Housing has been the main engine of economic growth over the past three years, and with that engine now going into reverse, it’s hard to see how we can avoid a serious slowdown.” (Via Alanna Hartzok)
FROM THE OP-ED PAGES
Tories and Libertarians
The British Conservative Party is considering replacing several taxes with one single-rate property tax. Since most of the value in property is in the land, the tax would recover large amounts of ground rent. This submission to the party’s Tax Reform Commission by the influential Conservative Bow Group would exempt the cheapest 20% of properties, worth £70,000 or less. Thousands of low-income homeowners would pay no levy while wealthy homeowners in London and England’s South East would see their annual bills rise and would pay more than the rest of the country. (UK Times, July 24)
Carl S. Milsted, Jr., the leader of the movement to reform the Libertarian Party and a senior editor of The Free Liberal, an independent journal distributed in the Washington, DC area (August 16): “Illegal immigration, job outsourcing, trade deficits, budget deficits, workers in poverty, the welfare trap, an insanely complicated tax code. They could all be substantially fixed by a citizen’s dividend. Everyone gets money from the government, but through dozens, if not hundreds, of different mechanisms. The result is a bureaucratic nightmare which makes our businesses less competitive, weakens our moral fiber, and makes life less pleasant generally. Followers of Henry George advocate a citizens’ dividend based on ground rents. I personally prefer replacing income and labor taxes with a mix of excise, property (including copyright and corporate value), and possibly sales taxes, combined with a citizens’ dividend.” (Via Mark Monson) If Carl Milsted realized how much rent is spent on other natural resources and privileges, would he still promote taxes on our efforts?
FROM THE ARCHIVES
The Plague’s silver lining
In 1349, “the landowners were having to pay high wages to labourers to make them work on the farms. Because so many labourers had died from the plague, those left were in great demand and were able to negotiate large payments.” This is from A Plague on Both Your Houses, on page 251, by Susanna Gregory, pseudonym of a Cambridge fellow and former police officer. See how some intuit the connection between land and wages? It got so peasants could work 14 hours a week to support their families – a tolerable workweek – in the Dark Ages! It works the other way, too. Instead of decreasing the labor force, one could increase the amount of useful, available land. Since they aren’t making it any more, you could recover land’s rent from owners. That’d spur them to not hoard land and use what they take efficiently, leaving plenty for others at prices others could afford. More land for farmers means less competition for other jobs, so wages are high wherever land is plentiful.
Turgot: de-tax or de-throne
Anne-Robert-Jacques Turgot (1727-1781) was a major figure in pre-revolutionary France, an exemplar of the Enlightenment. Turgot developed the four-stage theory of economic and social development from hunter-gatherer, to pastoral, to agricultural, and finally to market society. A forerunner of Marginalist Theory, he conceived of the idea of diminishing marginal productivity of factor inputs. Increasing the quantity of some factors increases the marginal productivity until a maximum point is attained. Past this point, the marginal productivity will decrease, fall to zero, and ultimately will turn negative. Each increase in input would be less and less productive. Essentially, all that Turgot lacked was the idea of the marginal unit. His analysis of savings and investment anticipated J.B. Say’s Law of Markets. As France’s Minister of Finance from 1774-1776, he told Louis XVI to cut government spending and to make taxes more equitable or there could be revolution. Turgot, in one of his Six Edicts of 1776, officially removed the controls on the prices and transportation of grain, flour, and bread. Like the physiocrats, he promoted free trade and advocated a single tax on the net product of land. He opposed protectionism and military conscription. Turgot proposed a hierarchy of elected assemblies going from the village up to the national level. Although he was sympathetic to American rebels, he did not recommend that they go to war. He also warned Americans that slavery is not proper and cautioned America about the possibility of civil war. (Le Québécois Libre, Montreal, No 186, July 30; Dr. Edward W. Younkins, Wheeling Jesuit University in West Virginia)
Development can happen
The White Man’s Burden by William Easterly is reviewed by Polly Cleveland. The title is from the Kipling poem. In his well-written, passionate, and witty new book, the author, a development economist, explains “Why the West’s efforts to aid the Rest have done so much ill and so little good … Who got the most standby [credit]s from the IMF over the last half century? Haiti, the Duvalier family (Papa Doc and Baby Doc) … The income of the average Haitian was lower at the end of the Duvalier era than at the beginning.” Third-world poverty does not arise from lack of capital or incapacity of local populations but from government by gangsters, warlords, and kleptocrats. Often, that is a colonial legacy. As a strategy for control, the colonials pitted groups against each other. Also there is the arrogance of “Planners”: academics like Jeffrey Sachs of Columbia or officials of the IMF, the World Bank, the UN, or Western governments. Planners create grandiose programs without investigating conditions on the ground or obtaining advice, requests, or feedback from intended beneficiaries. Then they provide assistance to those same bad governments. Much lending is worse than wasted; not only does it fail to reach the poor but it helps bad rulers retain power. Easterly highlights successful small projects of enterprising locals, whom he calls “Searchers.” Unlike Planners, Searchers carefully check out their “customers” and experiment with ways to deliver what they want. Successful outside aid is aid that supports such initiatives. Read Econamici – occasional emails with attachments or links – at www.georgiststudies.org. To receive it, contact Polly (email@example.com).
Krugman: Income gap ow!
Exxon has $36 billion cash on hand. Microsoft has $34 billion. All totaled at the end of Q1, the worth of the biggest 175 companies in Standard & Poors – cash and stock – topped $790 billion, about one fifth of the entire stock market. Their cash on hand, $295 billion, is 7% of the market’s value. That’s the highest in nearly two decades – which is about the length of the land price cycle. Besides pay dividends, buy back their own stock, and pay bonuses to officers, what else can they do with so much money? (Wall St Journal, July 26) Halliburton, recipient of no-bid contracts from the Bush people for rebuilding in war zones and New Orleans, swelled its profit 50% from Q2 last year, going from $392 million to $591 million this year (USA Today, July 21).
Paul Krugman: In 2004 the real income of the richest 1% of Americans surged by almost 12.5%. Meanwhile, the average real income of the bottom 99% of the population rose only 1.5%. Even people at the 95th percentile of the income distribution – that is, people richer than 19 out of 20 Americans – gained only modestly. Real median family income – the purchasing power of the typical family – actually fell, and poverty increased, as did the number of Americans without health insurance. Getting a degree doesn’t improve your chances of bucking the trend; the real earnings of the typical college graduate actually fell 5.2% from 2000 to 2004. (New York Times, July 14; via Alanna Harzok)
NYT ran an Economic View by Anna Bernasek, “Income Inequality and Its Cost”. The consequences of this yawning income gulf are at least fourfold: (1) Noting that their CEOs are paid 821 times more than they get [visit Economic Policy Institute], workers get resentful and perform at less than optimum. (2) Not earning enough while witnessing more than enough out there generates stress which translates into health problems and again less efficiency at work. (3) With much more wealth than others comes much more power and the easy temptation to yield to corruption, as in two-class societies. And (4), the gap widens itself as beneficiaries win ever more government favors – until a recession shifts the political winds and new policies are put in place. (June 25; via Heather Remoff) If those new policies were geonomics, whose salient feature is a Citizens Dividend from social surplus, that would put an end to unearned incomes and close this cavernous gap.
Intellectual property free?
How much is intellectual property (IP) worth? Gates and other richest people on the planet owe their fortunes to IP. Oceantomo claims IP is 80% of S&P 500 market value, up from 17% in 1975. Nakamura estimated at least $1 trillion per year gross investment in intangibles, which are not identical to IP but similar. (from Chuck Metalitz; footnotes at menace.iblogs.com) Part of the value of IP comes from patents and copyrights that make it easier to exclude other designers and programmers. Just as deeds and titles prevent newcomers from utilizing sites in a new land, so do patents and copyrights prevent newcomers from utilizing insights in a new field of knowledge. Yet inventors and discoverers do not need these government granted monopolies; instead they can turn their being first into winning a big enough market share to keep ahead of the competition for the life of their idea. Meanwhile, to be a dog-in-the-manger and try to monopolize a new industry that way is normal. But imagine if Newton or Leibnitz had patented calculus; then mathematicians would have to pay either genius to legally run their numbers. Making others pay is fair – as long as one pays full value for one’s patent or copyright. That is, society would charge full value for any monopoly it grants – people do pay full value for private insurance – and use the funds to pay dividends to citizens. If Gates et al had to pay to exclude, they’d still be rich but not stinking rich. While Gates and friends would not need this dividend, others do. Getting their share, basement inventors, garage bands, and starving artists wouldn’t have to suffer but could contribute their creativity, too, to society, enriching all of us.
Deficit worse than Reps say
Add the deficit to the list of numbers that the government hands out as understatements, along with inflation and unemployment, while their GDP overstates wellbeing – which doesn’t stop economists from using these statistics as “hard data”. USA Today notes (Aug 3) Congress has written its own accounting rules – which would be illegal for a corporation. The federal government keeps two sets of books. The set the government shows the public has a deficit of $318 billion in 2005, or $2,800 for every American household. The set produced by the government’s accountants reports a deficit of $760 billion for 2005, or $6,700 per household. What the former leaves out that the latter includes are retirement benefits for civil servants and military personnel. The principles that corporations follow require reporting financial burdens when they are incurred, not when they come due, and setting aside funds and earning interest to pay for the future obligations. The books of the Defense Department are so “unreliable” that auditors refuse to certify them. While the official deficit since 1997 is $729 billion, the government has actually run a deficit of at least $2.9 trillion. The difference is equal to an entire year’s worth of federal spending. If Social Security and Medicare were included, the 2005 federal deficit would have been $3.5 trillion, and the losses since 1997 nearly $40 trillion. The Bush administration opposes including Social Security and Medicare since the government can back out of those obligations at any time. Combined with other new liabilities and operating losses, the government would have reported an $11 trillion deficit in 2004 — about the size of the nation’s entire economy.
Fed admits surge from land
In metro Portland, land for new houses costs six times what it did 15 years ago, up from $31,000 per acre in 1990 to $187,000 in 2005, an average brought down by including all undesirable sites. Land prices increased twice as fast as home prices. (The Oregonian, June 26) While most people refer to “housing costs”, economists sometimes admit the greater value is not in the building but in the underlying land. According to a Federal Reserve study by Michael Palumbo, chief economist in the Fed’s flow of funds section, and Morris Davis, a former Fed economist now at the University of Wisconsin, what’s rising is not the value of the house – which ages and wears out – but the location, and that trend is likely to continue. In the 46 biggest metro housing markets, land’s share of property prices increased on average to 51% in 2004 from 32% in 1984. Regionally, underlying locations in more expensive housing markets claimed a greater share of the total, but residential land just about everywhere in the 1998-2004 period appreciated rapidly. And since 1984, most large cities have gone through one discernible price cycle in which residential land lost value for several years, usually after several years of rapid appreciation (which we’ve recently had). In real numbers, land prices have generally taken several years to go from peak to trough, and the subsequent recovery from these price declines has generally occurred at a more gradual pace. (Wall St Jnl online, June 20) Actually, since the assessment data and appraisal data that one must use is usually biased to give buildings a greater share of the total property value, land has absorbed an even greater portion of the rising value than estimated above.
Golden State is oily, too
This November voters will turn thumbs up or down on Prop. 87, a severance tax measure. Dr. Mason Gaffney of UC Riverside offers background excerpted here. California has long been and remains a major oil-extracting state. Its fields were exploited not long ago when oil was at $10/bbl or less and natural gas was a drag on the market. There is much surplus value there. Certain California local governments recover healthy revenues from oil fields. California’s State Board of Equalization helped counties assess oil fields for property tax purposes (showing, among other things, that it can be done). And yet California is the only state, major or minor, with no severance tax. Alaska distributes a generous social dividend annually from its oil revenues. It also keeps building a “Heritage Fund” for the future, as does Alberta and Wyoming and New Mexico.
Land tax seems disruptive
William Sell, Milwaukee businessman and activist (Jul 27): “Who are the stakeholders in the present system that would resist a higher tax on their land?”
Editor: Just about anybody who has land: homeowners, speculators, developers, plus lenders, defended by those academics who’re in the mold of the old priesthood who’d fry you for learning how to read. Then there’s the well-meaning reformers who’d rather tax the rich – economic science be damned. So, progress has been laggard, but proposing a share of recovered rents for all voters could change that.
Sofia: (Jul 6): “I attended your talk at The Onion in LA a year or two ago. The Property Tax Shift (PTS) seems so disruptive. Wouldn’t it cause foreign investors to divest US assets, as our manufacturing sector is shrinking? As land is the only ‘safe’ place for investment, foreign investors would put their dollars in land in countries without a PTS. Result: dollar crash.”
Editor: Depends if foreign money is in land that’s developed or unbuilt. Invested in developed land – in buildings – foreign owners could actually catch a tax break. And in cities of de-taxed buildings, economies do better; owners of buildings might even earn more. Further, foreign countries that don’t collect land rent are typically very unstable, not the ideal place to invest. Also, if the dollar loses value relative to other currencies, then, all things being equal, we export more and draw more tourists. “Crash” might not be the best metaphor.
Sofia: “Wouldn’t the PTS send capital not into small businesses but into mutual funds (globalized capital) and government bonds (money for war)?”
Editor: The few places that have tried the PTS have shown just the opposite; they get investment in production and urban renewal for free (free of tax subsidies).
Sofia: “Globalized capital takes jobs out of the US, undermining of the US economy.”
Editor: Jobs are overrated. Productivity eliminates them, too. So does automation. So does immigration. People don’t need jobs. People need money. We’d be much better off with a Citizens dividend from society’s surplus and a shorter workweek.
Sofia: “If there was no PTS, homeowners would at least stay in their (low-taxed) houses as they borrowed against their equity and slowly depleted their land’s value. Under a PTS, if small homeowners lose their jobs, they would quickly lose their houses.”
Editor: Actually, just the opposite happens. Using the PT as a proxy for a Land Tax, wherever there is no PT, people lose their land and homes. Why? As the tax drops, the price rises. More people can’t afford land and homes. Those who already have one borrow more, sink deeper into debt, and lose more. Under a PTS, their land tax drops as their assessment of their land’s value drops, which it does as income drops. So keep assessments up to date.
Sofia: “With current household debt, homeowners seem a very unreliable source of tax revenue. If the government relies mainly on the PTS, it would be in big trouble. Better to ‘cast a wide net’ and see what comes in.”
Editor: But that “strip-mines the sea.” It’s like trying to inhale everything instead of just air; many gases can choke you. Places that specialize – that don’t tax everything that moves but mainly recover socially generated values – actually recover more revenue, because where you don’t tax work or buildings, there people want to work and build, which pumps up site values, the thing you are taxing.
Sofia: “In a shrinking economy with layoffs, energy disruptions, and global competition, how do you sell the PTS?”
Editor: It ain’t easy, which is why I try to couple the PTS to a Housing Voucher for all residents.
Sofia: “The problem I see with your idea of a Housing Voucher is that it could be taken away by politicians.”
Editor: Politicians have not been able to take away the Alaskan oil dividend or the Aspen housing assistance. The more examples, the more entrenched.
Dr. John A. Sorrentino, Temple U (Jul 24): “Is there any ‘rule-of-thumb’ (somewhat like the Golden Ratio) for the percentage of land value that is land rent? I am working with data on one land-sale transaction and need some clever extrapolation.”
Editor: First, “value” is not synonymous with price; it’s whatever people are willing to pay for the land. “Rent” is how much they’re willing to pay periodically. “Price” is how much they’re willing to pay upfront in a lump sum, usually about 20 years worth of rent. So all value is rent. Rent is dynamic value; value is static rent.
Neil Gilchrist, longtime Aussie geonomist (August 28): “Government will widen the land tax base and raise the rate on site value if it is politically safe to do so. If land dues can be paid by payroll deduction or bank debit weekly, fortnightly, monthly, quarterly, or annually, it will be less painful. If citizens (recognized by being on the electoral roll, in other words, voters) receive a Citizens Dividend (CD) by an annual check, then there will also be widespread support. Australia has a land value threshold which is supposed to exclude the poorer land owner. It adds a lot of complexity to the administration of our land tax. A CD is a better way of achieving the same objective and is obviously politically attractive.”
Michael Strong, CEO of FLOW (September 1): “You are delightfully relentless. I do find myself thinking about land tax and Georgist strategies in general more and more; not all the time, but the issues are much closer to the foreground than they were a year ago.
In the media, on a podium
Communitarian Letter #12 asked: “Do affluent nations have an obligation to provide less privileged nations with foreign aid?” Feedback printed August 31, by your editor: No. There’s no such thing as “affluent nations”. Lots and lots of poor people live within those borders. To date, so-called foreign aid has meant taking money from non-rich taxpayers in rich nations and giving it to non-poor people in poor nations. Aid might be appropriate short-term, as during emergencies, but not as an ongoing process – which merely ignores an ongoing problem. When Carlos Fuentes was here in Portland OR, he noted that 80% of the aid never reached the ground but was gobbled up by corruption. So even if aid were right, it’s not practical. What is practical is “free trade” – getting rid of tariffs and subsidies (like agri-business subsidies), but not getting rid of protection for environment and workplace safety. But because most people fail to distinguish between true liberty and mere license, instead of real free trade, we get favored trade and coerced transfer rammed down our throats. People who care must reclaim their language before they can rescue the world.
Craig Townsend (June 24; via Dave Wetzel): “I’m in Bangkok doing research; any citations (preferably books or refereed journal articles) of any literature on how land value increases or rent increases can be captured to finance mass transit improvements would be appreciated.” Editor: The Victoria Transport Policy Inst (in BC) posts my lengthy bibliography on just that topic: www.vtpi.org/smith.pdf. Craig Townsend (June 24): “Thanks very much, Jeffery. This was just what I needed.”
Thanks to generous support from the Henry George School, the Robert Schalkenbach Foundation, and the Lincoln Foundation, several of us grassroots activists were able to attend the annual conference of the Council of Georgist Organizations (in Chicago in July) where I presented a talk on marketing one’s writing that’s supposed to both enlighten and entertain. As usual, it was a delightful conference; spending time with like minds recharges the batteries. Plus, there’s always something to learn about the locale, transportation economics, and the like. Attending this year got me close to Milwaukee where I had initiated a tour for Dave Wetzel, lobbyist and public speaker par excellence. Many thanks to Bill Sell for making Dave’s visit happen, Tom Galloway for setting up the meeting with the mayor, and Mark Monson for co-chofering and moral support. Those days combined the best of work and play.
Newcomers, old stayers
The Henry George School of Social Science funded our local education work for the coming year. The Council of Georgist Organizations supported (and endured) my presence at their annual conference. The Robert Schalkenbach funds my editing of the e-monthly, The Henry George News. Our spring Geonomist elicited enough renewals and newals to cover the costs of copying and postage: from super stalwart John Morales (MO ret. Panama Canal); stalwarts Clay Berling (CA activist), Richard Biddle (PA teacher), Wendell Fitzgerald, (OR activist), C. Lowell Harriss (NY ret. prof), Ernie Kahn (MA ret. optician); sustainers Herb Barry (PA ret. prof), Bruce Oatman (NY teacher), Nic Tideman (VA prof); supporters Ted Gwartney (CT assessor), Bruno Moser (Vietnam caregiver), Rich Nymoen (MN activist), Danila B. Oder (CA activist), Elizabeth Tonsmeire (Portlander, nee Fairhoper); and subscribers Dr Steve Cord (MD ret. prof.), Dr Mason Gaffney (CA prof), Dale Gillis (FL retiree), Gib Halverson (WI fireman), Joe Johnston (NC ex-priest), Mary Rawson (BC retiree), among others. Big thanks to all for re/joining, donating, and granting. If you don’t see your name above and know it belongs there, just send a check. We’ll know what to do with it.
WHERE FROM HERE?
Scripting a world we want
In Portland at Lewis & Clark’s Symposium on Environmental Affairs, to be held October 2-4, I’ll talk about how tax shifting, by saving people money, makes it easier to sell the green program and win real ecological progress. If you’re in the area, please join us.
If enough people enjoyed a book or movie, would they shift the paradigm? Can political change follow popular entertainment? Sure. Look how the book Uncle Tom’s Cabin helped end slavery. The movie Gandhi helped advance the peace movement. And note how presidents pretend to be John Wayne. Oops. So, OK, celluloid heroes can maintain the status quo, too. However, given that most people who vote no longer read, write, or think much, a movie might be the best way to reach them. Therefore, I’ve written three original screenplays to convey the ethic of sharing Earth’s worth in lieu of taxing efforts and subsidizing waste. They’re a sort of trilogy, each separated by at least a century. The oldest is a dramatic bio of Tom Paine, the man who penned the booklet, Common Sense, coined the phrase, “The United States of America”, and proposed a citizens’ dividend. The second is a contemporary comedy about the mafia who, in order to rake in more loot, force prosperity on a tropical nation by imposing geonomics. The third is a sci-fi time travel escapade of a couple of ne’er-do-wells accidentally sucked into Geotopia. All three scripts need lots more work. If you’d like to help with the revising or downstream the marketing, please do get in touch. A new story like Ecotopia might just be the impetus our movement needs.
What you can do
What you can do Harold Kyriazi, Pittsburgh medical researcher (Aug 14): “I got the t-shirt (gurus on mountain tops debating location compensation) and wore it to work. It occurs to me that the message should be on the back rather than the front. No one has time to read it while walking toward you. And people are embarrassed to stare at one’s body while walking toward you, but have no problem looking at others’ backsides.”
Editor: You’re the second person to give me that feedback. Next time, will do. Everyone who gave at least $50 got a T-shirt. All amounts help us highlight a path to a better world. Send what you can; we’ll do even more to deserve it. Happy Autumn Equinox!
Dear Forum on Geonomics (an educational IRS 501(c)(3));
Here’s my tax-deductible yearly dues:The bottom line: Secure Earnings, Share Earth