Money can’t buy everything but what it can buy is worth every penny.
Ready to go where no one else has gone before? As did Einstein who went alone into quantum physics? Picasso who went alone into abstract art? Steve Jobs who went alone into the personal computer? While we may not be in their league, the payoff is. And nobody but us is about to calculate it. We’ll just follow logic to wherever it may lead.
If you thought half of GDP— $11+ trillion —were a lot of “rent” (technical term), that’s just how much it is now when so much is concentrated in the deep pockets of owners, sellers, and lenders. How much would be the value of land and resources if it were shared equitably? More? Less? The same? So much that at least it’d make half of GDP seem credible today?
Actually … brace yourself for more good news. Just as taxing land value increases the tax base, so does sharing recovered rent increase the “rent base” (to coin a term). Material security coupled with an efficient economy lets us shift spending away from negatives like fighting crime and healing from pollution into positives like making cities livable. Within a number of years, it looks like social surplus could reach the Pareto Optimum. I know, crazy, right?
Like the Sorcerer’s Apprentice, starring Mickey Mouse, he could not even stop output from profligating (to coin another term).
If owners paid land dues to compensate the displaced, and residents received rent shares as compensation for being displaced, that would level the economic playing field. On it, members of society would make decisions that benefit not just themselves but their fellows, too. And as with Adam Smith’s rising tide, it’d lift all rents.
Here’s how Earth’s worth would grow when we all get a share of rents. Right off the bat we will…
Those five advances have two major consequences for the economy: (6) the GDP grows and (7) the cost-of-living shrinks. Together, these seven main factors will make the size of rent tomorrow dwarf its size today.
How much more rent would each of these seven fetch? Take a look.
Crime is costly. Victims have to make up for losses. To protect and serve, governments invest heavily in police forces.
Further, crime is distasteful, viscerally. People pay more to live in safe neighborhoods, less to live in crime ridden-neighborhoods (duh). But how much less? And how much more?
In 2012, the Center for American Progress calculated the direct annual costs of violent crime in eight cities—Seattle, Milwaukee, Houston, Dallas, Boston, Philadelphia, Chicago, and Jacksonville. It totaled $3.7 billion per year, an average of $320 per person per year. A 10% reduction in homicides would increase “housing” (actually, home sites) values 0.83% the following year.
Though number-crunchers say “housing”, they should say “location”. Three German scholars agree, saying in the portal of the Centre for Economic Policy Research, “rising land prices hold the key to understanding the upward trend in global house prices.” It’s not buildings but neighborhoods that become livable, thus valuable.
And there are more kinds of crime than homicides. Plus, the rate can fall by more than 10%. So site value can rise by more than 0.83%. Indeed, check out what these researchers found: “Zip codes in the top decile in terms of crime reduction saw property value increases of 7–19% during the 1990s.”
Besides the loss of site value, people have to spend extra on repairs, replacements, healing, etc, and governments on cops, courts, jails, etc. “The costs of crime in developed countries might be 10% of the GDP or more (Entorf and Spengler, 2002: 91), which is consistent with estimates that the costs of crime in the United States might be around $1 to $2 trillion per year (Anderson, 1999; Ludwig, 2006).” (Of course, the impact on GDP worldwide of all violence—individual [crime] and social [war]—is greater, over 13%.)
Much crime is committed for stuff and for status. When people get stuff and status by legit means, they feel good about themselves and treat their neighbors decently. That is, secure people commit less crime.
Once getting a share of rent, for being a proud member of one’s community, current troublemakers would largely quit misbehaving. Their neighbors no longer would have to make up for losses. Governments could exert less force and spend fewer public dollars on law and order. Lawmakers could cut taxes or kick back the revenue to citizens.
Everyone would spend that savings in ways other than dealing with crime. Residents and businesses would have the means (saved money) along with the motive (occupy their own castle) to create safe and pretty places. By how much would American site value increase?
Apply the 10% above to GDP to get $2 trillion—formerly a cost and now a savings to spend. Since Americans usually spend 1/5th of their income on location, take 1/5th of $2 t or $0.4 t—the increase in social surplus after cutting crime (in the streets, not in the suites).
As residents feel safe, they fix up the formerly rundown neighborhoods. In doing so, they raise their property value tax liability). And businesses, too, spruce up Main Street, malls, and shopping centers. In a virtuous cycle, these improvements further cut crime. (I know, so why tax improvements?)
Attracted by the more hospitable environment, newcomers move in. More population creates more demand and more competition among buyers. They bid up the price or lease-rent for sites-that structures-sit-on. Today, that means gentrification. But tomorrow, when residents receive a share of local land value, it means a fatter pie to divvy up.
In the bigger picture, people on the move bid up land value where they land, but deflate land value where they leave. So, for a region or nation, these local changes might not figure into the overall total. However, newcomers usually also pump up density. More consumers per acre increases business, increases income (means), increases prestige (motive), and thereby increases neighborhood site value.
Cities have been adding more people per acre, and ground rents just loves them some crowds. Manhattan with 70k residents per square mile has a price tag of $700 billion for its 23 square miles of land. Even experts get it: “housing prices increase more strongly in cities with more severe supply constraints, as measured by higher population density …”
To accommodate the newcomers, builders build. Where does the infill go? On vacant lots. On lots supporting abandoned and outdated buildings. The metro land needing such a makeover is at least a quarter of urban land—a lot of lots.
As builders increase supply, they don’t knock down price, but actually raise it. For the half decade 2010-2015, the ratio was 7 to 1. When builders increased the housing stock 1%, they increased the housing (er, location) price 7%.
Another researcher said redeveloping urban acreage raises its value 25%. Wouldn’t it be nice if we could get those two talking to each other? Who’s ever right, let’s forge ahead.
How much does total rent rise? To be conservative and make the math easy, apply 12% (less than half of 25% above). Apply it to the total we found for metro land value. It comes to about $0.6 t. Add it to the subtotal we reached by cutting crime, $0.4 t. Thus infill, plus density, on many metro acres, raises our near future increase to $1 trillion.
Currently, to avoid paying vaults of cash for a prime location, some choose to use the cheapest sites available in areas desolate and sparsely settled. But do they really save? Over a century ago, a guy name VonThunen noticed the cost of distance.
The farther out you go, the cheaper land gets, but the more expensive transportation gets. At the extreme, land is free (Death Valley). Versus: The farther in you go, the spendier land gets, but the cheaper transportation gets. At the extreme, transportation is free (in the heart of the city you can walk everywhere). You can plot it on a graph, drawing a diagonal line cutting the graph quadrant into two right triangles; the ratio is neatly 1 to 1.
Either way, you got to pay. But who does the math? Not us mathphobes (Ch 1). So to accommodate those who can not afford a heavy monthly rent or mortgage and choose to be nickled-and-dimed while getting about in the boonies, government lays asphalt—and paves the way for sprawl.
Sprawl is fine for some. Politicians are eager to please the Growth Machine. Builders, pavers, realtors, lenders, and investors are the ones who deliver the fattest campaign contributions. Pay the piper, call the tune. And music to the ears of business is the ka-ching of coin spent on transportation—a $1.3 trillion annual expenditure, much of which pavers capture. Their cohorts in the Growth Machine benefit from having the way paved for shippers and potential customers.
The Growth Machine enriches a few a lot and taxes everyone somewhat. Eben Fodor, author of Better Not Bigger, figures that each new house costs the taxpayers $25,000 in new infrastructure—expansion of roads, schools, sewers, etc—that the homebuyer did not pay for. A giving, just the opposite of a taking that land hoarders complain about.
Perhaps you watched a new bridge being erected, or a new light rail go in (a public investment), then checked out the new cost of housing or offices (a private investment). Higher, right? Thanks to the ease of access to those locations, making them more desirable. So residents and businesses bid up the value of land. Again, a giving, just the opposite of a taking.
Yet who connects the dots? So far, a minority. For the majority, it’s easier to tolerate reality, pay taxes, and go with the flow—or get stuck in traffic. While the aim of paving new roads and widening old ones is greater mobility, they don’t deliver. They enable growth, which delivers traffic. It’s a downward spiral that never ends.
Actually, not “never”. Already, localities have started to cater more to riders, less to drivers, and add in the alternatives to driving. Sidewalks, bus lanes, bike paths, etc all reduce traffic and raise mobility. Once residents receive shares of rent, more will choose to spend less time and money driving and more on being closer to the center of things with access to alternatives.
To serve an influx to downtown, where would developers put the new condos and shops? On land now devoted to cars: dealer lots, junk yards, gas stations, repair shops, insurance offices, patrol HQs, traffic courts, etc and mainly overly wide streets and parking. The automobile’s “tire-track” (not humanity’s footprint) shrinks drastically in compact cities.
To serve the growing ranks of urban dwellers, urban authorities do more to make their jurisdictions more livable, with bike lanes, pocket parks, pedestrian malls, trolleys, etc. In such cities, minus choking traffic, people don’t feel crowded, even in high density. Instead, people feel pleased, and spend more to be there. How much more?
Walkways, bikeways, and open space are amenities people pay more for.
Setting aside land for nature and lanes for muscle power are not the only ways to make metro regions livable. There’s also … Legalizing uber. Self-driving cars. Express mass transit (whether bus or rail). Tunnels. Beyond transportation there’s also … Recycling of water, garbage, and trash. Non-polluting power sources. Plazas. Chiseled buildings at corners. Amphitheaters. Parks. Pocket parks. Daylighting streams. Wildlife corridors. This list is probably not exhaustive. However, my search failed to turn up any scholarly correlations of such improvements to land value.
Imagine all American metro regions adopting these amenities and more (as they’ve already started to do). People do spend more to experience life in a livable city. How much more could metro land command? To be conservative and simplify the math, let’s use a middle value from above of 20%. One fifth of our current rent total for metro land ($5 t) comes to $1 t for a makeover of cities, leaving them walkable, bike-able, and livable, that lets residents have fun, be healthy, and be kind to the environment. Add it to $1 t for redevelopment and going crime-free, bringing our future bump-up to $2 trillion.
Yet we’re there’s cash left dangling. What happens to the $1 trillion that localities and residents now spend on sprawl annually? If citizens get feisty, their elected officials will have to either give it back or cut taxes. Either way, it leaves voters with more money to spend. The usual 1/5th to spend on location, $0.2 t, puts the future rise at $2.2 trillion.
It’s easy to misspend Other People’s Money (OPM, pronounced “opium”). It’s just human nature. So what if you unsuccessfully spend the dough; OPM is a never-ending flow. In the public sector, revenue is always OPM. In the private sector, all the money that bankers and stockbrokers handle is OPM. Look how they redecorate their offices, flit about in company jets, when they should be increasing dividends. OTOH, when the money you spend is the money you worked for, you’re far less likely to waste it.
Over time, the waste—and the interference into ordinary living that it funds (think airport body searches)—gets tiresome for many. Then the return on taxes is both too little and too irksome (as Woody Allen joked about food in Catskill’s resorts: too awful and not enough). So voters want change. Some consider cutting down on government spending and public “services”.
Enter formerly poor citizens getting a dividend from regional land values. It’s like they get an admission ticket to the middle class. Like most people enjoying greater income, recipients become owners and feel higher self-esteem. In the middle class, residents participate more in civic affairs. More residents vote, even show up at city hall to argue about what to spend public dollars on and what to cut off from the public trough.
They could very well defund traditional programs; society would no longer need such services so much. Without the needy, we could cut charitable services. When’s crime a rare aberration, we could shrink police budgets. By compacting cities, we could cut the underwriting of sprawl. Since fewer people would be joining up to get the GI benefits, we could trim the military. In general, we could diminish or eliminate the addictive subsidies and the counterproductive taxes that fund such programs.
How would streamlining the flow of public revenue impact land values?
No matter what program of public spending you like, or which type of tax you don’t like, all taxes and subsidies have four intrinsic, unavoidable flaws.
1. Taxes and subsidies cost. They do not just happen, they need to be staffed. You pay taxes to politicians who deliver revenue to bureaucrats who hire providers of various services who deliver their services to some. All those layers of middle people need to get paid. IRS and state and local collectors, accountants, and enforcers, for taking $1 cost the taxer $0.67. Add on the hundreds of agencies and departments for food stamps, Indian affairs, medicaid, schooling (apart from the schools themselves), energy (apart from actually delivering energy), NASA, the Pentagon, etc. The layers of bureaucracy are gigantic and expensive; some say 70% of the public budget stays in the building, only 30% reaches the supposed beneficiary. Even without waste like cheating military contractors, it costs money to take money and to give money.
2. Taxes and subsidies distort price. Taxes make goods more expensive, which the sales tax makes obvious, but all taxes decrease your purchasing power. And subsidies make “bads” more affordable; note how the free money to agri-business makes corn syrup artificially cheap and ubiquitous. That’s the direct distortion. Indirectly, the things that politicians do not tax become relatively more affordable, such as lawyers. The things they do not subsidize become relatively less affordable, such as organic food. The whole economy becomes less efficient. Because government makes corn cheap, you eat too much bread and not enough fresh fruit and spend too much on health care. Not being omniscient, politicians can never levy a tax or allocate a subsidy without conferring advantages and disadvantages. But of course. Why else would anybody lobby?
3. Taxes and subsidies violate quid pro quo. No matter how much benefit you receive, or how much impost you pay, if the two equate, it is only a matter of luck and not likely to happen again in several lifetimes. Normally, taxes paid don’t match dollar for dollar to subsidies received. If they did, there’d be no reason for lobbyists. The whole raison d’etre for lobbyists is to skirt taxes and/or amplify subsidies by a return of 10, 100, or even 10,000, or—hold onto your hat—76,000% on the amount invested in lobbying. Receiving such huge sums, those who win in the corridors of power ensure that others lose in the marketplace. Even when the losers could supply you, the consumer, with better goods and services, businesses that can’t lobby well get undercut, and you lose, too.
4. Finally, taxes and subsidies reinforce might makes right. All of us—except for insiders—have no choice but to pay taxes or go to jail and to accept subsidies or miss out on stuff that’s already been paid for. Being coerced, people use this fact to rationalize dishonesty—making inaccurate statements on forms, cheating customers in business, etc. Further, being coerced, everyone but insiders feels somewhat helpless. Some personality types drop out of civic life and make do with crumbs. Other types show excessive loyalty to the state.
Those applying the coercion—politicians, lobbyists, super wealthy, and aristocratic families—do all in their power to keep the gravy train rolling to the trough they slurp from, no matter how much suffering it causes others. They need to disable their conscience, which not only puts society at risk but also their mental health. None of these responses to the inherent coercion of taxation and subsidization is healthy for individuals or social progress.
How much are our elected officials and office holders wasting? Harvard says the federal government alone wastes $1 trillion. Then there are the states, counties, and cities. One pro-big-business, anti-big-government writer puts the total for all governments in America at $6 trillion—about 1/3 of GDP.
Imagine replacing subsidies to special interests with dividends to citizens. Government gets hugely downsized. Middle people—all the bureaucrats above—would need to find truly productive jobs or launch businesses. Either way, they’d quit dragging down the GDP and expand it instead.
When governments return the savings from no waste, or lowers taxes, that $6 t above goes into the pockets of citizens. Those luckies would spend the typical one-fifth on location, or $1.2 t. Human-friendly mobility, better development, and reduced crime had added $2.2 t, so now we’re up to $3.4 trillion fresh rent in years to come.
Economists euphemistically dubbed waste due to lobbying as “rent seeking”. More honestly it is “revenue winning”. Whatever the name, it costs everyone else lots downstream. Any given year, persons who can afford to seek favor waste somewhere between $1 and $3.5 trillion in national output.
So when government pulls the plug on them, they haven’t the wherewithal to waste, and everyone else has that income to spend. (BTW, those trillions may or may not somewhat overlap these trillions, the cost of bureaucracy in the private sector: $3 t.) People would spend an extra $0.2 t to $0.7 on location. To round off, let’s hang with the high side and use $0.6. Tack it onto the $3.4 t, bringing new rents to $4 trillion.
Taxes and subsidies are especially hard on the environment. Politicians tax labor, making labor-intensive industries less profitable than the capital intensive ones, upon whom politicians confer loopholes. Hence recycling, reforestation, organic farming, and solar energy are lose market share to their grey competitors like strip mining, clear-cutting, factory farming, and oil drilling. Additionally, politicians both subsidize fossil fuels and limit their liability, so providers of clean energy, not putting others at risk, lose a big competitive advantage.
With citizens serious about saving public dollars in order to swell their dividend, they’d target the handouts to polluters and depleters and make those corporations pay their way. Not only would the environment heal but so would humans. They’d feel less stressed by toxins and by financial pressure.
People could save trillions on medical bills. Presently Americans spend about $3.6 t on doctors, prescriptions, hospitals, insurance, etc. Once we’re well nearly full-time, we could save much of that expense, maybe $3 t. Because people use extra income to bid up land values (about 1/5th the savings), it’s another $0.5 t. Now you’re looking at extra land value reaching $4.5 trillion.
However unfair and inefficient taxes and subsidies are, having been around for millennia, we’re used to them and largely incognizant of alternatives. Yet taxes are not a “necessary evil” (if that’s not too strong for unfairness and inefficiency), and subsidies not necessary at all. Instead of taxes, governments could utilize the non-coercion-based fiscal tools of fees, leases, and dues, such as land dues. And instead of subsidies, lawmakers could simply pay you a dividend from social surplus directly, enabling you to hire the teacher or doctor or whomever you want.
A judge—a lawyer living off others paying taxes—called taxes the price we pay for civilization (more like for domestication, the libertarians among us would auto-correct). How high is that price? The four inherent deficiencies of taxes and subsidies drain away trillions of dollars. Plug the leaks (as with dues and dividends), redirect the savings to the populace, and they’d spend a goodly portion on bidding up the rent for locations. Let’s see how much.
Since taxes and subsidies inhibit economies from growing, their absence would let economies grow. Turn from subsides—gifting to insiders—to taxes—grabbing from outsiders. Eco-losses are not the only human activity (or depravity?) depressing land values. Among others are the taxes that shrink their base.
Mason Gaffney and Richard Noyes compared those US states that rely more heavily on property taxes with those relying more heavily on income and sales taxes. https://www.researchgate.net/publication/229605222_A_Simple_General_Test_for_Tax_Bias.
While most taxes shrink their base (and should, in the case of a tax on pollution), not all do. Somewhat counter-intuitively, the property tax shift—un-taxing buildings while up-taxing land—actually grows its tax base. Not taxing improvements allows owners to build and improve without penalty. Meanwhile, falling on locations, it falls on what was already created before humanity arrived. Having to pay the tax does not motivate anyone to produce less land or hide it offshore. Rather, having to pay the levy spurs owners to build and improve.
For the libertarians lurking among us, please note the tax aspect is not key. A fee or lease or land dues could work just as well. Now I feel better.
Nic Tideman, a former Presidential Advisor, with his grad student Florenz Plassman, calculated the result from replacing dumb taxes that shrink their base with one smart on falling on location (that expands its base). Such a tax shift would increase GDP by nearly 30%. BTW, that nigh 30% is for the USA. In Uncle Sam’s domain, taxes are relatively low. In countries with higher taxes, the forgone gains reach over 90% of their GDP. Anyway … Current US GDP would go from a bit over $20+ trillion to about $26 trillion. Spending a fifth of that extra $6 t, or another $1.2 t as rent, pushes up the increase in future natural value to $5.7 trillion.
It’s not easy to tell, but actually the cost of living keeps falling. We can’t see that reality due to the inflation of prices. Politicians and land (“home”) buyers keep borrowing and bankers keep issuing more new notes than the economy produces more new goods and services. The excess cash gets used by lucky recipients to bid up the prices of their purchases—usually assets like stocks, bonds, REITs, and real estate—triggering a chain reaction.
Currently, lenders have leverage over borrowers, so they can charge interest. But could they charge so much, or at all, on a level playing field? Presently, most people must pay “rent” to live in someone else’s house or apartment, very few of us get paid to house-site somebody else’s lodging. But what if capital were plentiful and savers needed to keep savings safe? We’d all enjoy the leverage of house-sitters. Then lending might not be profit making at all.
All the borrowing and going into debt has a solution.
Without so much debt in the economy, bankers can not inflate the money supply, so prices would stabilize.
Only briefly. The ongoing progress in technology would constantly batter costs, shrinking prices.
As costs fall, as prices fall, as wages and profits fall, the one thing that would stay high relatively (even if not absolutely) is the value of location. In the near future, such spending could rise from the current $11 t, more or less, by the $5.7 to $16.7 t total. With GDP a bit over $20 t, rent could be as much as 80% of GDP, the Pareto optimum. We’d be spending four times as much for locations and resources and on government-granted privileges like patents and copyrights than we’d spend on another’s labor or capital. Sorry to hog so much of GDP, but excuse me.
As natural value piles up, it reveals the autonomous nature of wealth. Indeed, economies can’t help but spew forth a surfeit of goods and services. All that’s needed, really, is for…
Then presto, bounty flows.
Those trillions spent for Earth would return to us as rent shares. While your expenses would keep falling, falling, falling, your “Citizen’s Dividend” would swell, swell, swell, at least relatively, maybe absolutely. Earth’s worth in America—soon to be $16 t annually—per capita of registered voters comes to about $120k annually. Monthly, your share is $10,000, every month. Gee, that’s like being rich.
Wow. Oversize me. It’s staggering. The size of this Citizen’s Dividend is so huge, it’s hard to process. Such gargantuan numbers makes one feel awe. And feel doubt; it sounds too good to be true.
Think of earlier outrageous claims that turned out to be true. Invisible germs. Human evolution. Space bends. 50 mpg cars. Dick Tracy wrist radio. It’s a long list. You can add to it the sheer bulk and dominance of rent.
It actually makes sense. In this case, the numbers don’t lie. Just follow the steps we took to reach this grand total. It’s not the product of ideology but of logic. Locations and privileges do command the overwhelming portion of our spending.
Sharing’s potential to change our lives drastically—and for the better—is likewise huge and hard to believe. If you thought the workweek could shrink and leisure expand with only $1k per month, imagine your lifestyle with $10k per month! We’d all be perfectly well off.
Most of our income would no longer be a wage or a profit. Most of it—80% of it—would be our share of all these rents. We’d be getting paid much more for merely being a citizen than for providing labor or supplying capital.
In actuality, most work does not put food on the table or a roof over one’s head or create clothes, cars, or computers. Most work is not productive but conformist. Check out The World’s Wasted Wealth by J.W. Smith to see how many jobs are performed to qualify for an income, not to produce an outgo of goods and services.
Our whole understanding of economies would change. The popular notion of labor vs. capital—actually erroneous as the basic dynamic—must fade away, to be replaced by the view of the struggle between rent-winners and rent-losers. Sharing natural bounty becomes the new normal, as normal as working at a job is now.
A good number for the worth of Earth in America could help people become aware of rent and understand how it comes about automatically. If humanity could get its ducks in a row and share rents, life on Earth becomes exquisite as it should be. That’d be reason to celebrate.
This article is Part 41 of a series highlighting the forthcoming book, “Bounty Hunter: a gadfly’s quest to know the worth of Earth,” by Jeffery J. Smith. To date, the experts have not risen to meet the challenge. Indeed, some have even stood in the way. Yet the payoff for knowing this datum is huge.
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JEFFERY J. SMITH published The Geonomist, which won a California GreenLight Award, has appeared in both the popular press (e.g.,TruthOut) and academic journals (e.g., USC's “Planning and Markets”), been interviewed on radio and TV, lobbied officials, testified before the Russian Duma, conducted research (e.g., for Portland's mass transit agency), and recruited activists and academics to Progress.org. A member of the International Society for Ecological Economics and of Mensa, he lives in Mexico. Jeffery formerly was Chief Editor at Progress.org.