Wealth and Want
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Mason Gaffney
for more, see progress.org and http://www.masongaffney.org/

Nonpoint Pollution: Tractable Solutions to Intractable Problems

Full Employment, Growth And Progress On A Small Planet: Relieving Poverty While Healing The Earth
Land as a Distinctive Factor of Production
Adequacy of Land as a Tax Base (1969)
What happens when a state radically slashes its property tax?
Two-Rate in Reverse
Privatizing Land Without Giveaway
Neo-classical Economics as a Stratagem Against Henry George
How to Revive a Dying City
Bottling the Air
The Partiality of Indexing Capital Gains
Cannan's Law
California's Governor-Elect
Land Rent in a Tax-free Society
Canada's System of Revenue Sharing
Economics in Support of Environmentalism
Eighteen Fallacies 
For Want of a Landlord
Henry George 100 Years Later: The Great Reconciler  
George's Economics of Abundance: Replacing dismal choices with practical resolutions and synergies
Taxation of interjurisdictional e-commerce
Interview: Is There a Conspiracy in the Teaching of Economics and History within the American Education System?
Megabucks for Negabucks: Solving the Water Crisis
Oil and Gas Leasing: a Study in Pseudo-Socialism
Property Tax: Biases and Reforms
The Relationship Between Property Taxation and the Concentration of Farm Land Ownership

Rent Seeking and Global Conflict
Rent, Taxation, Dissipation and Federalism
Rising Inequality and Falling Property Tax Rates
Sounding the Revenue Potential of Land: Fifteen Lost Elements
The Red and the Blue
The Taxable Capacity of Land
The Taxable Surplus of Land: Measuring, Guarding and Gathering It 
Unearned increments and reality in California's recall election
Who Owns Southern California?
In Memoriam, Stan Sapiro

Mason Gaffney: Nonpoint Pollution: Tractable Solutions to Intractable Problems
The Special Challenge to Economic Thinking
The Search for Surrogates
Sources of Nonpoint Pollution
What Problems are Created?
What Problems are Unsolved by Excise Taxes on Surrogates?
The Case of Forestry
The Case of Urban Settlement
The Case of Agriculture
The Common Theme from Forest, City and Farm

Nonpoint pollution goes right to a chink in the armor of conventionally trained economists (like myself) who are overtrained towards becoming protagonists of the price system.  To the skeptical we are "free market freaks": eco-freaks who are -nomic rather than -logical.  Whatever our faults we are zealous, and carry the conviction of true belief.  With the problem at hand, however, we can't do what we do best, that is call for price signals, punt, and slip away.   

The very name "nonpoint" pollution suggests that economists see this as just an odd bit of clutter, something "non-regular" in their tidy world.  Indeed, all pollution was an exception, an "externality," until recently (at least at my age it seems so).  Then they learned you can meter effluents and tax them, or trade effluent rights around like private property.  Thenceforth they could fit pollution right into existing models and ideologies with minimum intellectual strain.  They were happy as Procrustes with a new guest.   

But we can't meter runoff — how frustrating. 
  • It comes from areas —how disorienting. 
  • Its damages are spread unequally over other areas, differentially populated — how non-homogenous. 
Standard-brand economists are ill-equipped and undisposed to face such problems.  Read the entire article

Full Employment, Growth And Progress On A Small Planet: Relieving Poverty While Healing The Earth
There is enough land, if only we use it well. Poverty and unemployment result from owners’ withholding better lands from full or any use, creating an artificial and specious scarcity of land relative to population. Read the whole article

Land as a Distinctive Factor of Production

A.  Primary Distinctions
A-1.  Land is not produced nor reproducible
A-2.  Land as site is permanent and recyclable
A-3.  Land supply is fixed
a. The overall planet is fixed.  |  b. Land is fixed within political jurisdictions.  | c. Land as site is immobile in space, permanently. | d. Land is fixed in form. | e. Acquiring land must mean taking others'.
A-4.  Land is immobile in space and uncontrollable in time
a.  Land does not migrate. | b.  Land values are marked by continuity in space | c. The services of land flow and perish with time.  | d.  Land is not uniform to a user or firm. | e.  Land is not uniform to a city or economy | f.      Land division is a highly social process. | g. Nuclei are interdependent. | h. Land is immobile among taxing jurisdictions.
A-5.  Land does not turn over, but rather is recycled and is versatile
a. Land is not convertible into other land. | b. Land is necessarily versatile. | c. Land per se is economically divisible, unlike capital.  | d. Capital evinces "economies of simultaneity" in construction.
A-6.  Land is not interchangeable with capital
A-7  Land rents are subject to common forces that differed from and are generally reverse to those that determine interest rates (the price of capital.
A-8.  Land price guides investors and determines the character of capital, as capital substitutes for land
A-9.  Land is limitational
A-10.  Land value is not an economic fund
B. Major Economic Consequences
B-1.  The origin of property in land is not economic
a. Politics guides the original distribution.
i)      The right to sell was won by force, is not universally honored, and must be kept by continuous use of force.
ii)     In practice, selling for cash up front reserves most land for a few with front-money advantage, inside information, good contacts, corrupt aides, etc.
iii)    The ability to bid high does not necessarily come from legitimate saving.
b.  Privatization is dominated by giveaways and resultant "rent-seeking,” which warps allocation.
c  Inertia takes over after the original distribution, perpetuating and aggravating it.

d. WTA vs. WTP survey findings; their relevance and import.
B-2.  Much land remains untenured
B-3.  Landownership imparts superior bargaining power
B-4.  Land Rent does not evoke production, thrift or investment
a. Land rent does not determine interest rates. | b.      Existence of land value actually lowers saving rates. | i)      Land value substitutes for real capital in portfolios and thus lowers the need to create real capital.   | ii)     Rising land prices are net income to individuals. | c. Investing in land is macro-economically sterile.  | d. Public policy needs to promote capital formation but not land creation. | e. Land price is unrelated to cost of producing land.
B-5.  Land rent is a taxable surplus
a. Relative elasticities. | b.  The surplus is much more than usually stated.  
B-6.  Uniformity in taxation between land and capital is not neutral
a.  Land and capital are non-interchangeable, and mutually exclusive. | b. Taxing capital is non-neutral per se. | c. It is impossible to tax capital uniformly. | d. It is impossible and undesirable to tax consumption uniformly.
B-7.  Land values are hypersensitive to discount rates
B-8.  Land markets are dominated by access to long-term credit
a. Financing purchase ranges from difficult to impossible. | b. Land purchase is not self-liquidating.  | c.The corollary of high land price is high carrying cost relative to cash flow. | d. Credit barriers are barriers to equimarginal allocation of land.
B-9.  Control of land gravitates to financially "strong hands"
a. Landownership accretes around existing nuclei. | b. It follows that landownership is highly concentrated.
B-10.  Land markets are sticky
a. Weak seller motivation.  | b. Waiting for Godot.  | c. Limited competition.  | d. Lags in reallocation. | e. Lack of homogeneous land. | f Lack of turnover. | g. Hoarding for vertical integration. | h. Assembly.  | i. Institutional stickiness.
B-11.  Land is a major basis of market power
a. Expansion is zero-sum. | b. Land is a natural base for monopoly and monopsony.  | c. The differentiation of land is permanent. | d. Local market power. | e. Land is the basis of cartels. | f Land puts the lock on monopoly.
B-12.  Land income is much greater than the current cash flow
a. Appreciation is current income. | b. Landowning yields large non-cash service flows.  | c. Land income is a prior claim, not a "residual." Cf.  A- 14. | d.Land income is a large share of national income.
B-13.  Consuming land means preempting its time
B-14.  Land's rent is its opportunity cost, regardless of use
B-15.  Land value is hypersensitive to the environment (Canary in the mine)

C. Land-driven Booms and Busts
C-2.  Land value is used as the basis of credit and money
C-3.  Land markets are prime causes of instability
a.      Land prices move in cycles of high amplitude. | b.      Investors respond to high land-price by forming land-saving capital, i.e. substituting capital for land.  It is useful to distinguish five forms this substitution takes (cf A-6, where these points are outlined).
i)      Land-saving capital, like high buildings.
ii)     Land-enhancing capital, meaning capital used to improve land for a new, higher use.
iii)    Land-linking capital, like canals and rails and city streets.
iv)      Land-capturing (rent-seeking) capital, like squatters' improvements, and canal and rail lines built to secure land grants, and dams and canals built to secure water rights.  
v)      Rent-leading capital.
c.      Land-saving capital is well above average in durability.
SUMMARY   Read the whole article

... Hundreds of books on economic theory are published with "land" absent from the index. ...

The discipline has not totally eliminated land, but marginalized it. The discipline has not totally terminated land: it is too subtle for outright skullduggery, preferring equivocation and confusion.  Rather, it has marginalized it.  There is a subdiscipline called "Land Economics," and a journal of that name.  There are journals of Agricultural Economics, Urban Economics, Regional Science, Environmental Economics, Natural Resources, and more.  There are also whole disciplines of Geography, Economic Geography, Military Science, Biogeography, Geology, Geometry, Surveying, Astronomy, Theology, Ecology, Oceanography, Meteorology, Soils, Physiography, Topography, and Hydrology, all dealing with The Earth and Nature and Creation as definable topics distinct from man's works. ...

Common micro theory finesses Time.  It deals with economic relations as though they occurred at a point in time (and space as well); as though they were relations of coexistence, rather than a cavalcade of events in sequence.   Sometimes two points are allowed (short run and long).  Thus micro theory can ignore the birth of capital, its growth, maturity, senescence, death, burial, and replacement, vital elements of its difference from land.  Time, and relations of sequence, are hived off to the far satellite of "finance," usually not even taught in departments of economics.  Time is also referred to under "history of economic thought," as an obsession of some 19th century Austrians who wrote quaintly of "roundabout" (time-using) methods of production. Relations of sequence are found in macro, but not firmly integrated with microtheory, which is the enduring core of the discipline.  Microtheory still deals with relations of coexistence in time, and space as well. As A. A. Milne once wrote, "It isn't really anywhere, it's somewhere else instead." Of neoclassical theory we may add, "It isn't really anytime, it's some other time instead."6 ...

"Land" in economics means all natural resources and agents, with their sites (locations and extensions in space).  Land is not just the matter occupying space: it is space. It includes many things not colloquially called land, such as
  • water and the beds under it,
  • the radio spectrum,
  • docks,
  • rights of way,
  • take-off/landing time slots for aircraft,
  • aquifers,
  • ambient air (the right to breathe it and the license to pollute),
  • "air rights" to strata in the third dimension of cities,
  • falling water,
  • wild fish, game, and vegetation,
  • natural scenery,
  • weather,
  • the environment,
  • the ecology,
  • the natural gene pool, etc. 
  • Any franchise, license or privilege giving territorial rights is a species of easement over land. 
    • Your driver's license is a right to use land;
    • red lights remind us of the critical value of space at central locations, since two objects cannot occupy the same space at the same time. 
    • It is worth a lot to have the right-of-way, as railroads do.
Economic land excludes many things, too, that are colloquially called land.  It excludes land-fill, for example, by which many cities are extended into shallow waters.  The site and seabed are properly land; the land-fill is an improvement.  There is no "made land" in the economic sense: it is reallocated from other uses.  Expanding cities take farmland from producing food and fiber, much of it for the expanding city itself.  Filled land in shallow water near cities is taken away from anglers and sailors and viewers and ecologists, who now routinely  organize to prevent it being "made" away with.  Drained and filled wetlands are taken away from endangered species, as well as from their primal role as filters protecting coastal waters from river trash and pollutants.  Thanks to the myopia and dereliction of economists, it has taken militant environmentalists to carry home this truth, developing in their struggle to be heard and understood a deep skepticism of economists and their "way of thinking." Some economists and environmentalists are now coming to terms with each other, after decades of mutual shunning.  Too many modern economists, however, still use their "way of thinking" to seal out important new evidence that doesn't fit the model. ...

Capital occupies space; land is space.  In common micro theory, resources and markets come together at a point not just in time but in space.  Again, it excludes from its purview one of the prime qualities of land.6
6.      It is ironic that economists purport or affect to ape the methods of physics, when they delete both space and time from their subject.  If they have borrowed from physics, they have taken the form without the substance.

For the reasons given, alone, land and capital are mutually exclusive. There are, however, nine more, which follow.  ... Read the whole article

Land as "site" (location plus extension) does not normally wear out, depreciate, spoil, obsolesce, nor get used up by human activities incident to occupancy and production. In contrast, capital depreciates from time and use, routinely and by nature.  After being formed, it must be conserved from entropy by continual maintenance, repair, remodeling, safeguarding against theft and fire, and so on.7  Like our own bodies, it returns to dust; land is the dust to which it returns.  Inventories are depleted; moving parts wear out; fixed capital depreciates with use and time. ...

It follows that the demand for land arises over time with incomes, but faster than incomes. ...
Land value in cities may be defined as "what is left after a good fire"; arsonists take that quite literally.  ... Read the whole article

What happens when a state radically slashes its property tax?

Michiganders are saying they must wait and see, but there is no need for that: California can show you 17 years of experience. To read your future, just study our past. Here is what has happened since California passed Proposition 13 in 1978.

The obvious direct results have been to cut public services, raise other taxes, and lose credit rating. ...

The private sector is doing badly, too. Raising income taxes, business taxes, and sales taxes is no way to stimulate an economy; they are all a drag on work and enterprise. ...

It should give one pause. It is, however, if you think about it, the expectable result of what the voters did.
  • They turned property from a functional concept into a sacred one; from a commission to be enterprising, hire people, produce goods, and pay taxes into a welfare entitlement.
  • They rejected the concept of a tax on inert wealth in favor of the rival concept of taxing liquidity and cash flow.
The predictable result is to inhibit economic activity, and encourage holding wealth inert and stagnant.

David Shulman tersely summarized the distributive effects of Prop. 13 as he left us for Salomon Brothers in Manhattan: "it breached the social compact." ...

1/8 of all new businesses started in the U.S. were in L.A., 1945-50. These were small, creative, flexible, and too varied to classify. No Linnaeus could sort them in conventional categories: the new Angelenos simply stayed here and started producing everything for themselves, some things previously imported, and others never seen before.  ...

Why is that not happening today, 1995? An invisible, pervasive change is Proposition 13, which makes it possible to hold land at negligible tax cost. In 1945 land was taxed at 3% every year, building a fire under holdouts to turn their land to use. Today that same tax cost is well below 1%. Using Gwartney's Rule of Thumb, it is about 1/8 of 1%: a rate of 1% applied to 1/8 of the true value.

Landowners are only taxed now if they use their land to hire people and produce something useful. Then they meet the drag of our high business and employment and sales taxes, necessitated by the fall of property taxes. A handful of oligopolistic landowners control most of the market; small businesses are squeezed out. This helps us segue from being at the cutting edge of industrial progress to a third-world economy - from the NH model to the AL model - with little relief in sight. ...

California displayed amazing growth up to 1978, and the resilience to shrug off the loss of war industries after 1945 and still grow "explosively" (as Jane Jacobs put it). After 1978 we have a string of reverses. The timing, along with a priori causative analysis, plus various direct observations too numerous for this time-slot, support an hypothesis that the reverses were aggravated by Prop. 13. Michigan, be warned of our lot, and learn about taxes from us: "This Could Happen to You." Read the whole article

Two-Rate in Reverse
In 1955, Spiro Agnew was a Maryland State Assemblyman on the rise. He carried a new law that let tax assessors value farmland on its "use-value" as farmland, instead of market value. It let owners who were farming for unearned increments around Baltimore and D.C. hold out with low carrying costs. "Farmland" meant land used for farming, and any play at farming would qualify. Under this law, a relative of mine with 102 acres in Maryland near Western Avenue, the D.C. line, kept just two steers thereon to validate his farmland assessment status. Holding for the rise "never crossed his mind." Right -- except, whenever such land is condemned for public use, courts everywhere have held that compensation must be based on speculative market value. ...

It is not just peri-urban land speculators who gain. A large chunk of land value in rural regions is not based on cash flow from food and fiber, but on amenities. Wisconsin is a major playground for rich urbanites from nearby Chicago, Milwaukee, Minneapolis and St. Paul. "Use-value" assessment exempts this chunk of value completely, for use-value is based on capitalizing the net cash farm income from growing crops, and, in the Wisconsin law, specifically corn. The highest land values per capita in the State are in Vilas County up in the north woods, once dismissed as worthless "cutovers." Vilas' barren podzol soils are worthless for corn, but sparkling lakes bedizen the County. Values per capita in Vilas are 6 times those in Milwaukee. Rich recreationists and "investors" (read speculators) are gobbling up the "wild forties." Shoreline parcels are like diamonds among coal. ...

100 years ago, American Georgists made a big point that city land outvalues rural land many times over. One implication is that taxing city land is taxing the rich, and we can ignore farmland. Some land-taxers counsel that farmers are easily misled to oppose us, so leave them alone and convert the cities. But rich city folks also own choice rural lands.

  • The Hearst palace at San Simeon sits amid 82,000 manorial acres, including miles of prime shoreline, "improved" with just one home per 82,000 acres. This home, jammed with imported treasures, had become a white elephant even before Citizen Kane uttered his final "Rosebud." The heirs were glad to fob it off onto the taxpayers of California, deducting its alleged value from their taxable incomes, while they kept the 82,000 acres.
  • Craig McCaw, who made his billions by amassing spectrum licenses, turned some of the pile into a spread of many thousands of acres stretching north from Big Sur -- land he never got around to using.
  • The O'Neill families and Donald Bren of Orange County,
  • the Newhall family of Ventura County,
  • the Chandler family that owns the Tejon and Boswell empires that spread over several counties,
  • Ted Turner who owns over a million acres around the U.S.;
  • the Koch brothers of Kansas with all their oil wells,
  • the Kleberg tribe with their million-acre King Ranch in Texas;
  • the Southern Pacific Railroad (now Catellus Co.),
  • Standard Oil:
those are a few of the struggling family farmers whom use-value assessment of farmland saves from destitution.

The privilege of use-value assessment stretches even beyond farmlands, vast as they are. Timberland in most states gets the same preferred treatment, only better. About 1/3 of the privately owned land in the U.S. is in timber. In California, owners (mostly huge corporations) may put the land into the "TPZ" class. The standing timber is then exempt, and taxed only at harvest, at 2.9%, much too low a rate to make up for a 60-year lifetime of exemption. County assessors have to value the land separately on its putative value for growing timber, following a State-legislated formula that is tailored drastically to understate even that low value (California Revenue and Tax Code, Section 434.5). Much of that land, though, has alternative uses, e.g. for retirement and vacation homes and resorts, the outliers and pioneers of urban sprawl. There are also mineral values, hunting, fishing, rifle ranges, grazing, campsites, tourism, rights of way, lumber camps, loading sites, water sources, lakes, log storage, landings - there are many things to do with 1/3 of a nation's land. Those uses are all declared "compatible" with timber, hence land values derived therefrom are tax-exempt.  Read the whole article

Privatizing Land Without Giveaway

Neo-classical Economics as a Stratagem Against Henry George (in The Corruption of Economics, London: Shepheard-Walwyn, 1994)

The Imperative to Put Down Henry George
The crabbed spirit of neo-classical economics
Popular responsiveness to problem-solvers
Henry George as reconciler and problem-solver
  • George reconciled common land rights with private tenure, free markets, and modern capitalism.
    a. Those who got the upper hand by securing land tenures would support public services, so wages and commerce and capital formation could go untaxed.  
    b. To pay the taxes, landowners would have to use the land by hiring workers (or selling to owner-operators and owner-residents). This would raise demand for labor; labor spending would raise demand for final products.
    c. To pay the workers, landowners would have to produce and sell goods, raising supply and precluding inflation. Needed capital would come to their aid by virtue of its being untaxed.
  • George's proposal lets us lower taxes on labor without raising taxes on capital.
  • Georgist tax policy reconciles equity and efficiency.
  • A state, provincial, or local government can finance generous public services without driving away business or population.
  • Georgist tax policy contains urban sprawl, and its heavy associated costs, without overriding market decisions or consumer preferences, simply by making the market work better.
  • Georgist tax policy makes jobs without inflation, and without deficits.
  • George's land tax lets a polity attract people and capital en masse, without diluting its resource base.
  • Georgist policies let us conserve ecology and environment while also making jobs, by abating sprawl.
  • Georgist policies let us strengthen public revenues while in the same process promoting economy in government.  Read the whole article
How to Revive a Dying City

Blight is not restricted to stagnant or declining cities. In booming Los Angeles, there is Watts. In nearby Riverside, one of the fastest growing cities in the nation, the CBD [Central Business District] is surrounded by blight which, among other things, frustrates years of subsidies aimed at reviving the moribund CBD itself.

These extreme cases are not anomalies, not simply ghettoes and embarrassments; they are symptoms of systemic malfunction. They could be portents and symbols for the rest of the economy. Blight may be defined as failure to maintain, replace, and renew capital inherited from the past. Studies indicate that all of American industry faces this problem, compared with vigorous foreign competitors. In learning to cure blight, we may learn to restore the greatness and pride of this whole troubled nation.

There is also good news: some cities have risen from the grave. Indeed, all land development is resurrection in a sense: all land has been used before for something. The history of a city lot usually shows that there were several antecedent improvements, layered like the ruins of ancient Troy. The goal should be to make renewal happen faster and more widely, while we are still here to benefit. ...

Some cities should be abandoned.

Towns around played-out mines are obvious examples. A farm town becomes redundant when new roads let customers patronize a larger or better town. Salvage what you can and move on.

Some would apply the same logic to all cities. Dead cities aren't lost, they say, but rebuilt elsewhere; they were cash cows that have been milked dry. Their depreciation allowances are reinvested on new frontiers; people and vitality move with the capital. It is an important half-truth, but a half-truth is also half wrong. The basic original site stays put; land cannot move. Public and private social capital cannot move, either.

We cannot afford throwaway cities in a finite world. New natural sites are not common. There is only one Hudson Valley with only one mouth, and here New York City has stood for 350 years. We cannot abandon the Bronx and duplicate its environment somewhere; we cannot rebuild the natural setting, and the sunk social capital is too costly. Relocating to suburbs involves commuting cost in terms of money and congestion. And then, when we tire of the new suburbs, where will we go next?

Furthermore, blighted areas have high potential market values. Picture a topographic map of a city where the contour lines represent points not of equal elevation, but of equal market value per square foot. The peaks, the Everests and McKinleys, are in the city retail centers, where just one square foot rises to $2,000 (about $90 million per acre). Land just a few miles away from dizzying altitudes can hardly be worthless. Harlem is near Park Avenue; Watts is near Beverly Hills; South State Street is very near the Sears Tower. Newark is 15 minutes by train from Manhattan. Newark office rents are $25/sf per year. That is less, of course, than in Manhattan, but in Riverside, California, we are throwing up offices to get rent of $12/sf per year, while Newark stagnates.

This was written in 1988.  That $90 million per acre figure is much higher now.

George saw cities as foci of civilization's basic mechanisms. People with mutual access, associating on equal terms, expedite cooperation and specialization through the market. Multivariate interactions are synergistic. Indeed, while each parcel is developed in the stage of decreasing returns, the composite city is generally in a stage of increasing returns, thanks to synergy: the whole exceeds the sum of its parts, and increases to the whole yield more than the sum of increases to the parts. Synergistic surplus, said George, lodges in urban land rents. Thus he explained a phenomenon which other economists overlooked: the unparalleled rise in urban rents and land prices, and in owners' wealth and power. ...

To understand ground rents and land prices is to understand cities; not to understand is to remain mired forever in confusion and fallacy. Ground rent continues forever, generally tending to rise; therefore, to buy title to land, people pay prices that look high relative to current cash flows. ....

Urban land prices take your breath away.

Land prices vary extremely from city to city or block to block. The cost to build a square foot of floor space is fairly constant from place to place, but demand varies with location. A small rise in floor rental translates into a large rise in ground rent and land price, because the land owner gets everything above what is required to operate and amortize the building. Thus,

  • in Riverside, neighborhood mall space rental of $12 just pays for the building, with only a little left over, resulting in land prices of perhaps $5-$8/sf.
  • In Manhattan, rentals are triple those in Riverside; all surplus accrues to ground rent, resulting in land prices 300 times higher than in Riverside.
At key locations in bigger cities, land prices are not just high per square foot, they are higher per capita than in small cities. They are even higher relative to building values, in spite of the high-rise buildings. Remember that each additional floor adds more ground rent, because floor space rental is more than enough to cover the added cost.

Land prices across cities and neighborhoods are much more differentiated than other measures economists commonly cite. For example, the median income in upper east side Manhattan is about 8 times higher than north of Central Park, while the price of land per square foot is probably 40 times higher. Urban land is also highly concentrated in ownership; a handful of people and corporations own most of it. A growing share of income property is held by wealthy aliens, who want to diversify and acquire secure wealth they can manage by remote control. Aliens even hold a good deal of residential property in international "jet set" communities.

Because urban rents are a social surplus, not a payment for anyone's making or supplying land, parties other than the landowner have a claim. A good deal of American politics deals with how to assert that claim and share in the surplus.

Dividing a big pie seems a pleasant enough task, but Confucius knew better: "It is easier to face a common enemy than to share a surplus." The common ways of sharing surplus are clumsy, divisive, and destructive; they bear some responsibility for dead cities. With too much quarreling over spoils, there are no spoils to dispute. Consider how spoils are shared, and how we might do better.
  • Rent control
  • "French Equity" (Equity in Kind):  Today we approach French Equity indirectly, and expensively. We distribute land haphazardly, but seek to make every parcel equally good by extending utilities and roads to all parcels on the same terms, regardless of cost or location.

Economists call such schemes "postage stamp pricing," because postal rates do not vary with delivery costs. Manhattan has 64,000 residents per square mile; Montana has 5.4. It costs a lot more to collect or deliver mail in Montana. The reason postal rates rise is that the U.S. urban population is spreading out more like Montana and less like Manhattan (which once had over 100,000 per square mile). Here are five other examples:

  • The British Columbia Ferry Service. ...
  • British Columbia Hydro....
  • Water and sewer service in Milwaukee County, Wisconsin. ...
  • State university campuses. ...
  • Water supply in California. ...
The key to renewing cities is shifting from obstructive ways of sharing rent, like rent control; and destructive ways, like looting and subsidies; to constructive ways. Henry George showed us how equity and efficiency go hand in hand, how the magic of justice combines with the magic of incentive.
  • First, by George, equity need not be in kind. The monetary mechanism overcomes the clumsiness of in-kind equity. If four families inherit a one-family house, all four don't crowd in; they sell and divide the money, or one buys out the others. There is equity in money as well as in real estate. Money is often better; the reinvestment opportunity puts the house on a magic carpet to follow you anywhere. Money is wonderful!
  • Second, by George, use the tax mechanism. Do not divide land into unusable morsels, or shackle the market with rent controls, or dissipate rent in subsidies. Give land to the highest bidder, and tax ground rents to support government.
"Higher Taxes that Promote Development." The fixed tax is levied on land value, based on opportunity cost. The owner uses land harder and improves it more to meet a fixed tax; or sells, releasing surplus land to those needing more space. Taxes stifle enterprise only if they increase with enterprise. Land tax increases only with opportunity cost, which is independent of the enterprise of the owner. The only activity this tax impairs is withholding land from use.

George's land tax promotes equity toward the landless in at least four ways:

  • it relieves them of taxes, to the extent that landowners pay more;
  • it supplies them with more goods and services, as land is used better;
  • it offers them jobs producing those goods and services; and
  • it offers them a better chance to acquire land, as surpluses are released to the market.
This is supply-side economics with a kick.  ... George's program not only reconciles efficiency and equity, it squares taxes and incentives. What more can we ask of economic policy than to resolve stand-offs that have confused us, and dead-locked constructive action, for generations? ...

Camden has the highest tax rate in New Jersey, causing a vicious circle as high rates drive away capital and further erode the tax base. What if only land value were taxed? The depressant would become a stimulant by the simple magic of converting a variable charge into a fixed, unavoidable one. So it is with most depressed cities, which today look vainly to Washington for salvation. They need enabling legislation from their states, on the Pennsylvania model, but given this power can save themselves.

The counterpart of sharing rent through taxation is to untax things, like buildings, that involve human endeavor. This doubles the incentive effect. If land tax is the stick, untaxing buildings is the corresponding carrot, and George's program makes both larger. Every lot with an old "Defender" building has a potential replacement, the "Challenger." Taxing buildings rigs the fight against the Challenger. Say the lot-cum-Defender is worth $100K, and the Challenger would cost $500K to build. Challenger cash flow must exceed Defender cash flow by enough to pay $500K, plus added taxes based on it.

Georgist tax, by contrast, is impartial between Defender and Challenger; the market decides.

New buildings face liquidity crises; almost all are built on credit and need time to yield cash. The timing of tax on a building maximizes the damage during the crisis period, for any given tax yield over time. Of course, every building uses public services, but new buildings in older cities pay for more than they receive, while old ones receive more than they pay for. Think of building tax as a forced loan to the Treasury, to be recovered when the building is older. What could be more counterproductive than forcing a loan from a builder passing through a credit crisis? The Georgist tax is low when the builder's cash needs are pressing, and rises slowly over time as the site ripens to its next best use.

Urban blight is cumulative and self-reinforcing: blighted buildings cast a pall on land around them, discourage upkeep, and stifle renewal. Whatever slows renewal of one site slows the neighborhood in a vicious, downward spiral. Conversely, new buildings stimulate renewal. There are exceptions; some new buildings sterilize blocks with blank walls.

But the exception is not the rule, and abuse is not the precept. The rule is that new buildings draw tenants from old and weaken other Defenders, so that other owners also renew. When they do, where better than next to the newest building? Renewal, like blight, is cumulative, but in a benign, upward spiral. Competition for sites raises the tax base if land values are derived from ground rents. The higher base allows the city to improve public services without taxing buildings or scaring away generators of fiscal surpluses. In this scenario, buildings raise the tax base indirectly, by raising the value of land around them.

Riverside built a downtown pedestrian mall when they were in vogue, and has been sorry ever since. It did not work; retailers deserted, and half the stores are empty. I asked the developer of a successful mall why he thought downtown failed, and got a two word answer: "absentee ownership." I should have known, having preached it for years.

Farm advisers say, "The best dressing for soil is the owner's shadow, applied daily." In town they ask, "Who's keeping the store?" Absentees aren't the only negligent owners, nor are they all bad. Torpid owners are the problem, and they come in many forms. A city wants to be rid of owners who see real estate as a cash cow for their retirement, and to replace them with owners who see it as a vehicle for enterprise and who apply their shadows daily. The shadows follow them to local civic clubs and to enterprising downtown or neighborhood associations for making joint improvements.

The surplus to land attracts outside buyers. Absentees, redundant parties in production, are often top bidders for pure ownership, which is the legal right to receive land rent plus unearned increments that accrue over time. Georgist taxation cuts directly into rents and unearned increments, which attract absentee owners; it spares the rewards of enterprise. It thereby effects a market transfer of ownership from absentees to occupants, with the community benefits that follow. In a period of rising concern over alien takeovers of U.S. real estate, these points merit focused attention.

Untaxing buildings attracts outside capital to an area, but does not result in new capital formation for the economy. In Keynesian models, however, reducing tax on new capital raises the rate of return after taxes (marginal efficiency of capital) and creates new capital. In supply-side models, increasing saving is more important. Land taxation helps here, too.

Land taxation, if vigorously applied, tends to reduce the investment value of land, through a process called "tax capitalization." With land devalued, those needing wealth acquire substitute assets by saving more, and investing the savings in real new capital rather than land.

Georgist taxation tends to reduce the need for public spending in two obvious ways.
  • One is to increase job opportunity, which in turn reduces welfare spending. More productive job opportunities should reduce pressure for military spending of a boondoggling, make-jobs nature as well.
  • The other is to eliminate urban sprawl and its wasteful cross-subsidies.
"Slum clearance" in the 1950s had a negative caste, with a name catered solely for middle class consumption. Reuse of cleared land was often at lower density, inevitably throwing unhoused people on the private market. Federal "urban re-newal" in the 1960s, while better named, emphasized clearing, not rebuilding. The inventory of cleared, unrebuilt land under the program grew each year. Cynics' cracks of "bombing out" and "Negro re-moval" were on the mark, though blacks were not the only evictees. Any talk of demolition and renewal evokes the specters of those cruel, wasteful programs.

But George's program begins with fostering renewal and intensive use. Clearance is involved only to serve renewal, never as a goal in itself. The first land taken would generally be vacant or with boarded-up buildings. New buildings would draw renters and buyers from old ones, releasing more space. The idea and impact are to increase rentable, salable floor space. There would also be more firms to compete in selling and hiring. How do we know there would be an aggregate increase in supply?

  • Higher density is one test. Untaxing buildings fosters higher density because density, exemplified by high buildings, substitutes capital for land. Untaxing capital obviously makes it more economical.
  • Higher quality is the other test. The richer the new tenants or buyers, the more space is released when they move. This is the hardest point for advocates of the poor to accept. There will always be specific cases where the rich bump the poor, leading to contemptuous names like "trickle-down" that dismiss effects on the market. But the aggregate is what should concern us. If tenants mobilize against new construction, a minority with a vested interest harms everyone else, including the poor. Building new homes for the rich, who can afford them, releases usable space for everyone else.

There are three kinds of slums.

  • Only the narrowest kind, the slum on high-value land, causes eviction of the poor to benefit the rich. Owners in these uncommon areas neglect their buildings, expecting to demolish them for expanding commerce or high-rise apartments.
  • The second kind is on bad land which will stay bad.
  • The third, and most common, kind is on good land with old buildings that have filtered down to people who generate bad neighborhood effects. Units go vacant; land value is low. The market renews these slums not in a stroke, but by nibbling at the fringes. Yet as it nibbles incrementally in, it unavoidably creates more space than it consumes, raising aggregate supply.
The poor also must fear gentrification, in which new gentry displace the poor in the same old buildings. This is one result of not renewing; renewal as such is innocent. It seems carping, too, to criticize people for restoring old buildings. The alternative may be seen in ungentrified neighborhoods, where buildings simply go out of use, sheltering no one. But the ultimate end of Georgist policy is viewed in terms of the nation, pitting cities against each other to attract people.

Nothing is better for people than to be competed for. It raises their bargaining power as tenants, buyers, and workers.

With all that talk of capital and efficiency, remember that we began with a quest for justice in sharing rent surplus. Justice and efficiency are not at odds; we can have both. The trade-off expounded by many economists is to enervate us so we won't do anything. Yet we have shown not just that we can have both, but more; we cannot have either without the other. If we do not share rents in the efficient Georgist manner, social and political pressures will cause inefficient sharing and eventual dissipation.

This is what economic policy can do. The basic impulses, however, the striving for justice and brotherhood, and the sense of personal ethics, come from within, and from family, community, schools, and religion. So does the sense of workmanship, the striving for excellence without which no system works.

There are city councilpersons who can corrupt the best system ever blueprinted. The Georgist program may even help to straighten them out. Lincoln Steffens taught us that the villain in Eden was neither Eve nor the serpent, but the apple! The apples of discord that corrupt city councils are unearned increments to land value, which they create or deny with every decision on extending sewers or changing zoning. Georgist tax dehydrates those apples by attaching higher tax to each unearned increment.

Georgist policy has been shown as a means to revive dying cities, and in the process to reconcile equity and efficiency; to reconcile supply-side economics with taxation; to reconcile capital formation with taxation of the rich. It can be seen as a means of harmonizing collectivism and individualism, in the most constructive ways possible. I know of no other program whose proponents can even make such claims, let alone substantiate them. In a world that has already priced younger people out of the real estate market, we should find George's program worth our intense study and support.

Bottling the Air
In effect, we don’t fine people for emitting, we reward them with a right to continue. Then we can pay them to stop, by buying back the right we just gave away. This is putting the free market to work, they say. If you have not been emitting before, too bad. I have offered not to emit millions of tons of nitrates, and sulfates too. My price is modest, and highly competitive. I underbid the big refineries by 50%, but Air District officials just hang up on me, if you can believe it. They say I must have earned my offset right by suffocating the neighbors in the unregulated past.
And those who want to breathe? Coase says they should pay for the privilege, as they pay for indulging any personal taste. After all, they already pay those who supply them with land to live on. Only welfare bums would expect property owners to dip into their hard-earned savings and supply them with free air, when the market has a solution at hand. All they need do is buy offset rights from Ancient and Honorable Emitters. When they want to breathe, they just retire the rights upwind of them. This is a marvel of efficiency, too. They retire only what it takes to clean the air they need: no waste.
What about the new-born, with no prior history of either emitting or breathing?   Read the whole article

The Partiality of Indexing Capital Gains (1990)
Now we are witnessing a major effort to revive the exclusion of part or all of capital gains from taxable income, partly on the grounds that much of the gains are "phantom" income, an illusion of inflation. ...

Land is not formed, like capital, by saving and investment; land is not reproducible. For that very reason land tends to appreciate, and therefore has to be a major source of what are misleadingly called "capital" gains. Again for that very reason, there is no supply-side kick in untaxing gains. Most of them are land gains, and should be called that. To use land as a store of value is macro-economically unproductive at best, and on balance counterproductive and destabilizing (considering its effect on financial institutions like the S&Ls). ...

As to borrowing on land, that can be worse than barren when the financial system rises and falls on a land bubble, as it has and is. ...

Ignoring land and its distinctive attributes has the effect of treating land as though it were true, reproduceable capital, to be formed by saving and investing, to be routinely worn out and replaced in the normal course of life and business. It lets advocates of investing and capital formation abuse the legitimate case for macro incentives, exploiting the case to camouflage unearned, nonfunctional rents and increments to land value.

Tantamount to ignoring land is minimizing its weight. Thus one may acknowledge it indulgently, while actually dismissing it. In fact, though, land comprises some half the assessed value of taxable real estate in California, and is not dismissable. Half the assessed value means more than half the market value because of assessment discrimination favoring land. A raft of studies of assessment discrimination, like the sales/assessment ratio studies of the U.S. Census, show consistent patterns of discrimination favoring land. In addition to ordinary assessment discrimination there is much legislated underassessment, for land in forest, farm, country club, and other favored uses. ///

... most of us resident in California have been through one or more years since 1976 when the value of our homes alone rose by more than our annual salaries. ...

We are not pushing for a general wealth tax, but for impartiality and accurate thinking about indexing capital gains, a policy that would protect some forms of wealth, but not others. This apparently temperate, common-sense proposal is in fact partial and discriminatory. Worse, it protects most where the macro social benefits are least. Read the whole article

Cannan's Law

California's Governor-Elect

For better or worse, California has recalled its governor and elected Arnold Schwarzenegger (A.S.) to replace him. A.S. has revealed no specifics of how he will stanch our deficit. He campaigned on generalities: he is against taxes, against waste in government, against measures to rein in vehicle use, and nostalgic about the good old days when Governor Pat Brown was spending heavily on roads and water projects. No one seems sure how he will connect the dots. After his first visit to Sacto last week, he seemed not sure, either.

His choice of advisors, however, tells us A.S. will repeat Pete Wilson's performance from the early 1990s. Chief of Staff Patricia Clarey is a good soldier from Wilson's old staff; Auditor Donna Arduin is from Jeb Bush's Florida. The gurus who set the doctrinal tone give the clearest hints: they are neo-classical economists of deepest dye. These are advisors George Shultz and Michael Boskin from the Hoover Institution. Economics, to them, is a set of dismal choices. California's choice is to cut public services, or lose business and jobs. That is what they told Wilson in 1994. All taxes are the same, always "burdens," always driving away "business."  ...

Boskin and Shultz, posing their dismal choice for California, dismissed by silence that we can raise needed revenues while also spurring job creation and stimulating the economy. It is simple: restore that part of the property tax that falls on land, while continuing to cap the rate on buildings. ...

It is also alleged that land values are too small to support government. Let us test that idea. In 2003, at the current rate, there will be about 15,000 "confirmed" sales of owner-occupied urban California residences at prices over $1 million. That is from DataQuick, a standard source of current real estate data. 15,000 is about 2.7% of all confirmed sales. Some of those go much higher. The mean is probably over $2 million.

Turnover of costlier homes is lower than that of ordinary homes. (For example, turnover of existing homes is 30% greater in Riverside County, with lower values, than in Orange County, with higher values.) 2% a year is a fair guess at the turnover of homes valued at $1 million or more. If so, there are 50 x 15,000, or 750,000 homes in Calif valued at a mean $2 millions. Their aggregate value is 750,000 x $2million = $1.5 trillions.

These are not large buildings: they average 2864 s.f., with 4 bdrms, 3 baths. In the north end of Sta. Monica, a vacant lot alone is over $1m. They are not new buildings: only 9% are new. It's the land that makes them worth so much.

A tax of 1% on that value would yield $15 billions a year. That's from only 2.7% of the urban homes in Calif. The data exclude many sales, country manors, for example. Some well-known lands thus excluded are
  • the Lucas compound and the Pritzker family compound in Marin;
  • San Simeon;
  • the Reagan Ranch and similar holdings in the northern half of Sta. Barbara Cnty;
  • fashionable winery properties in choice valleys statewide;
  • the Chandler family's Tejon Ranch;
  • the 200,000 acres of James Boswell in the Tulare Lake Basin; etc.
There is also the other 97.3% of urban owner-occupied residential real estate. A lot of it is just under $1 million a pop. In Marin County, the median sales price of owner-occupied single-family homes was $700,000 when last seen, and rising. The mean is always higher than the median. Some L.A. County cities with median values just under $1 million include San Marino, Bel Air, Westwood, Brentwood, La Canada, Calabasas, and others. There is also all the other land: commercial, industrial, farm, forest, etc., which is 60% of the assessed property value in California, and a much higher fraction of the real value because it is so egregiously underassessed. ...

A high fraction of California real estate is absentee owned. The Sultan of Brunei, for example, owns several houses and sites in Beverly Hills and Bel Air. California's official Legislative Analyst, the highly respected William Hamm, estimated in 1978 that over fifty per cent of the value of taxable property in California was absentee-owned. ...

Some half of any reduction in California property taxes leaks to out-of-state owners. Nor is this the only leakage. ...

Yet no one has seized on this obvious case to show that local property taxes, substituted for absentee rent payments, creates multiple increases in local income. The whole intellectual apparatus is dominated by absentee investors and used for their benefit.

Many valuable land resources are held by license, rather than title, and escape the property tax almost entirely. ... Read the whole article

Land Rent in a Tax-free Society

Outline of remarks by Mason Gaffney, for use at Moscow Congress, 5/21/96 

1. Rents are a taxable surplus. I estimate that this taxable surplus constitutes 35% or more of the national income in most nations with market economies, and more in resource-rich nations. ...
2. The value of rent is huge. Every economy produces a large excess over wages. To be sure, not all of it is surplus. Some of it goes to replace capital that wears out each year. This is not part of the net surplus, nor income to the capitalist; it is a return of capital. ...

Second, some goes as a return to capital, over replacement. This is pure income. Income to capital is not a taxable surplus, but a functional incentive: it moves people to form and supply capital. This entails securing new capital (by saving, and borrowing) and conserving old capital (avoiding dissaving, and avoiding export of capital).

Capital income serves another useful function: it steers capital into the most productive uses. Steering capital to its best uses has the same useful function as securing new capital, and conserving old. Using capital effectively is as beneficial as securing more capital, and ever so much cheaper. The Great Transition in Russia now is learning to allow income on capital, to secure these benefits. The trick is to do it without allowing more than is needed.

The rest of the excess over wages is captured in the rent of land. It is a true taxable surplus. The amount is already huge, and will become huger yet when existing taxes are abated.

The size of rent is not reported in capitalist nations, except to trivialize it. Their national accountants, dominated by landowners, neglect or conceal it artfully, to protect it from being taxed. Local governments do, however, measure and tax property by value. More than half the value of property is land. In Vancouver, B.C., 73% of the value of all property assessed for taxation is land, even though much land there is exempt from tax, and not assessed at all. In California's major cities it would be just as high if only we assessed land here as accurately as they do there.

3. Rent will become huger yet when you abate taxes presently levied on production and exchange, because these now depress the rent of land. That is, in a tax-free market economy, the benefit of abating present taxes will lodge mainly in land rents. The taxable surplus simply shifts from one form to another.

This is more than a simple shift of a fixed amount. When you substitute land revenues for existing taxes, the surplus actually grows, as if by synergy. You gain more revenue base than you lose, because existing taxes now suppress much latent production. Payroll taxes directly drive workers from taxable jobs to untaxed gains from crime. Abating those taxes will unleash suppressed economic giants, along with all the new surplus values their latent production will generate. "Monetarists" warn you that "there are no free lunches." In fact, however, good policy creates lots of "free lunches." It makes the whole greater than the sum of its parts. Imagine the benefits, alone, of turning people from destructive careers in crime to useful jobs producing goods.

At the same time, the effect of socializing land revenues is to stimulate better land use - the opposite of the effect of existing taxes. Every landowner, to pay the required land charge, is pushed to steer his land to the best use (just as paying interest steers capital to its best use). Thus, the shift to rent-based revenues doubly induces new production: it releases the brake of present taxes, and replaces it with an added push to produce. This is "supply-side economic policy" in the best and truest sense. It generates yet more surplus. You may take all of rent to support government functions, without damaging private market incentives, but only sharpening them.

This policy lets us achieve and reconcile two policies that many now believe are incompatible, viz.: free markets, and common rights in land.

 4. Some of the benefit of abating existing taxes will lodge in higher after-tax wage rates, rather than higher rents. ...

5. Many varieties of natural resources generate rents. City land is the greatest single source. For example, one city, Vancouver, contains half the value of taxable property in B.C. - a province of 934,000 sq. kilometers, or 70% larger than France.

However, many other resources yield rents. Some of them are also huge in value, even though some are inconspicuous. Here are a few varieties of them:

  • access points to transportation (by water, rail, highway, air, etc.);
  • clean air (or the license to pollute it);
  • aircraft time-slots and gates in airports;
  • amenities (good views, warm weather, soft breezes, freedom from pests, riparian access, etc.);
  • aquifers;
  • dam and reservoir sites;
  • water in arid zones;
  • rights of way;
  • preferential use of "common" lands (e.g. street parking in New York);
  • covenants over lands of others (e.g., covenants against competition);
  • easements (e.g. the right to pass over land);
  • fisheries;
  • forests;
  • franchises (exclusive right to sell in certain areas);
  • the gene pool;
  • geothermal energy;
  • grazing;
  • licenses;
  • minerals and gas (rent includes the rise of value of minerals in situ);
  • orbits;
  • some patents (giving effective control over minerals);
  • ability to wield political influence (meetings at private estates; special voting rights);
  • rights of way;
  • foreign holdings and ocean shipping routes protected by national forces;
  • soils;
  • spectrum (radio, TV, communications);
  • legal standing;
  • strata rights;
  • space on the streets;
  • advertising sites;
  • water;
  • wildlife (for hunting, viewing, etc.);
  • wind (for power);
  • zoning permissions; etc.

Some of those varied resources are highly valued. For example,

  • newly minted fishing permits offshore of Washington State sell for $1 million each. Their owners retire and rent the permits to working fishermen, creating an instant class structure where before there was equal opportunity. Imagine the value of an exclusive right to take Caspian sturgeon.
  • Radio spectrum amassed by the McCaw Company recently passed to AT&T for $13 billions.
  • Dmitri Lvov estimates that your oil and gas revenues alone could support the entire national government (Practicable Course of Economic Reforms in Russia. Moscow: Russian Academy of Sciences, Central Economics and Mathematics Institute, 1994). They might even surpass urban rents in value, if they were valued at world market prices.
  • In arid lands, access to water is life itself. Read the whole article

Canada's System of Revenue Sharing
It seems to me therefore that we need to face up to the question that is known in my trade as Fiscal Federalism, that is, how is money going to be distributed by the federal government out of its so-called surplus, either to people or the States, or localities? ...

The reason it's so hard to sell growth policies at the local level today in the United States is very much due to the fact that the United States federal government taxes people and it gives subventions to landlords. So the landlords can get the subventions without having the people. So who needs people? That's it in a nutshell. We need to reverse that, I think, if we're going to be able to make Georgism work at the local level. ...

At any rate, let's begin by looking at the similarities between the federal systems in the United States and Canada. In both countries we find something called 'vertical balancing' which means that the senior governments send money to the junior governments. We find also something called 'horizontal balancing' which means that the payments are made more to the poorer governments, those that are poorer on a per capita basis, than to richer ones. ...

 ... Cannan's Law. ... But the general idea is, you may think you have tenure control of land but if the municipal government can tax that land and use that money to finance public welfare services, public education and other things that are open to all comers, then you will end up with an uneconomical distribution of population. ...

At the same time, in both countries you find something I will call Hammer's Law. This is not a carpenter's tool but again the name of a man, an economist in Missouri, who observed in 1935 that if you compared population to land values in the different counties of his State (in the very poor counties of the Ozarks the land was hard scrabble land of very little value, with the very rich lands in the north-western part of the State, which resembles Iowa) you found that the population density was much greater on the very poor land of the Ozarks than it was on the very rich land of the northwest. ...

Now another similarity to the two countries us that the subventions that do go from the federal government to the provinces in Canada (and you find a similar thing in the United States) do not come from the richer provinces. They come instead from the general fund, the general taxpayer. There is in other words more vertical balancing than there is horizontal balancing (horizontal balancing you remember means equalization among the different jurisdictions). It's a little like what somebody said about foreign aid. 'Foreign aid is a device by which poor people in rich countries are taxed to subsidize rich people in poor countries.'

We'll see that equalisation in most countries works something like that; that is, in addition to this inter-provincial equalisation, there's a tax shift involved where local sources of taxation like the property tax are being displaced by the federal income tax. I suppose Ferdinand Marcos would be a splendid example of the kind of person I was talking about in the poor country and in West Virginia you have all these coal companies whose owners live in Palm Beach, whose shareholders live in Palm Beach and such places, who benefit from an inter-state equalisation that benefits West Virginia. Well these are similarities.  ...

The federal aid in Canada goes to provinces, whereas in the United States it goes to specific cities, The U.S. Congressman likes to have his fingerprint, as they say, on every dollar that goes from Washington. ... So in the States the idea has been: Tax the States according to their population and then give the money back according to political power. In the United States Senate it means that the smallest State has just as much clout as the biggest State or would have if their senators weren't so merchantable. (I mean, in California when we need something we just look to Nevada or one of those places for a Senator who is having difficulty raising funds for his next election. But that's another story.) ...

But the most delightful distinction about Canadians is the strong and explicit recognition among almost everyone, even if he's an economist, who discusses this subject, that different resource endowments are the basis of inter-provincial differences. Equalisation in Canadian politics means sharing the economic rent. Everybody talks that way. Canadian economists even when they come to the States talk that way. Just as though rent were a permissible word in polite discourse. It's very refreshing. However there's a very selective attitude towards rent -- towards what rents are shareable, I should say.

  • Rents from oil and gas are fair game.
  • Forest revenues are fair game.
  • Mineral revenues of other kinds are fair game.
  • Water power is fair game.

But now how about the rents that are generated by the valuable lands of Montreal, or Toronto, or some of those other big and powerful cities in the east? They are not fair game. As a matter of fact, if you pore through the fine print of the equalization law, which I did on the airplane, you find the most interesting exception to what's included in the formula. I'll explain the formula to you in a moment if you are still awake. ...

Now let's look at the sharing formula. The sharing formula in Canada is essentially based on population and potential tax base. And it can be made to look very complicated but I think I've boiled it down to its essence. You take a province's percentage of the population of Canada, and then you take the percentage of the tax base that it has, subtract that and that gives you another percentage. And then you multiply that times the total tax revenue that's collected throughout Canada from that tax source, and then you pay them that amount out of the provincial treasury. ...

The conclusion of all this is that the Canadian system is really better in terms of its Georgist implications because the payments to the provinces, with all the faults that I've described, are essentially based on population. Population is in the formula. And if you compare this with the way things are done in the States, population plays a very minor role in the formula for equalisation payments in the United States.

Now, how should it be done? Well, there's a well known Georgist economist who figured this out a long time ago and wrote an article about it. His name is Colin Clark. ... He came up with a plan for collecting economic rent at the federal level, and he said what we really should do, and this I think is the ultimate equalisation payment, is we should classify local jurisdictions according to land value per capita, and those that have the least land value per capita, we'll leave all of that land value for them to use for local purposes. But then we will graduate the federal land tax according to the amount of land value per capita in the jurisdiction, and thus we will have a federal tax that automatically achieves inter-regional equity, without all this razzmatazz that I've been describing about inter-regional equalisation payments. Read the whole article

Economics in Support of Environmentalism
  1. Worthy goals often conflict with each other A. Corn vs. Barley B. New rules C. Unresolved conflicts D. Danger of isolation through overkill
  2. The Dereliction of Economists A. Defining away land  B. Private property: from means to end C. Leapfrogging, floating value, and compensation  D. Siege mentalities
  3. Gifford Pinchot's Winning Formula A. Defining "Conservation" B. Finding common ground
  4. Pinchot on "Development"
  5. Urban Sprawl A. Development is not identical with Sprawl   B. Sprawl is not a quest for open space   C. Sprawl is not the product of free choice   D. Looking for Mr. Goodbar   E. The public pays twice  F. Proactive solutions
  6. Dig deep
The hardest choices are those regarding land use, because there is just so much. We can build more houses, cars, and boats, write more music and drama, spawn and educate more people, but we cannot make another Hudson Valley. ... economics shows how the market sorts and arranges land uses, giving us a corn belt, a wheat belt, and a cotton belt. Economists pride themselves on this achievement. (Some preen themselves too much, as we will see, and pride goeth before a fall.)

Sometimes the rich take land from the poor, provoking sympathy, strong rhetoric, and occasionally effective rear-guard resistance to such changes. Actually, a well-oiled market is often quite democratic. People of moderate income, by crowding, can outcompete those of high income for the same land ...

Other worthy goals that conflict are open space and water conservation. ... Something has to give. Thus far it has been wetlands that gave. Once, perhaps, we had too much wetland, but that was long ago. We cannot accommodate all those uses, and save wetlands too, just by having restaurants stop serving water, or putting bricks in toilet tanks. Those are just token or "Goo-Goo" measures for parlor reformers; they distract us from real problems, and substitute for real solutions. What is the highest and best use of water? Wetlands, maybe; more golf courses, maybe not. But we need a rule to gauge "highest and best use." Is it the market? Read on.

Some of the losers in the market game are not willing to grin and bear it. Instead, they write new rules; they want to play a different game. Soilsmen did this long since. They like to classify land and rank it by its potentiality for growing crops. Farming is - to them - the ultimate value, so it is the highest and best use: cities may have what's left over. It is perhaps poetic justice that habitat-savers are now doing the same thing to farmers. They conceive highest use as that which saves endangered species: soils and farming may be damned, right along with housing, commerce, transportation, industry, storage, water supply, waste disposal, fire control, education, religion, mining, government, national defense, recreation, and whatever else needs land. All human activities, and survival itself, need land, so that list is a long one. Each constituent of the other uses becomes an enemy.

Both Soilsmen and habitatspersons have a point, we will see, but they have a fatal weakness. Neither has a system that composes conflict with other worthy goals, including each others'. As to cities, both soilsmen and habitat-savers would direct cities away from low-cost, high-productivity land to the high-cost leftover lands. They would not make this an end in itself, of course, but it is the necessary by-product of downgrading urban usage in the competition for land.

Thus, to restore citriculture and habitat in what is now L.A. we would move the city folks to hazard-prone floodplains, steep slopes subject to fire and erosion, quake-prone fault lines and liquefiable soils, etc. We would also move them away from the center, imposing longer commutes, greater auto-dependency, longer utility lines, longer hauls to dispose of solid wastes, more air to protect, more aquifer surface to protect, more land to protect from flooding, etc. ...

There is another kind of fundamentalist, the private property kind. The economics profession (my tribe) has, in recent years, largely abdicated its proper role as an arbitrator and gone over mainly to the side of private-property extremism. This is the essential meaning of "Neo-classical Economics," which is the idiom of most discourse in the field today, both in business and in the profession.

How did economics get so twisted? Don't blame Adam Smith, or David Ricardo, or John Stuart Mill, or John E. Cairnes, or Knut Wicksell, or Philip Wicksteed, sterling 19th Century writers. Rather, blame J.B. Clark, Karl Marx, Richard T. Ely, Alvin Johnson, Frank Fetter, Frank Knight, George Stigler, and a host of lesser figures who gradually warped economics into its present form. How did they do it?

They wiped out land, resources, nature, and the environment as a separate class for analysis. In official Neo-classical doctrine, the world is an infinite reservoir of raw land and resources. Raw land has no value until man does two things:
    • Man subjects land to private tenure. ...
    • Man improves the raw land, pumping value into it. ...
In a proper view of things, I submit, private property is a means to an end. It is not an end in itself; it needs a functional rationale. The end is to get land put to the best use. All the private land in the world was originally granted by some sovereign public person or body, mainly for that purpose, not as a welfare entitlement. Landowners and their lawyers have slyly, over time, turned the means into an end, a fetish they endow with "sanctity." This is a term they borrowed from absolutist medieval theology. "Sanctity" means the quality or state of being holy or sacred, hence inviolable. It means property may not be challenged, or even questioned. It has become an end in itself, its own voucher. You're not even supposed to think about it, it is above thought. Taboo!

Neoclassical economics, historically, marked the final, total surrender of the profession to this fetish. The modern economist's view runs something like this: "I pledge allegiance to the 14th Amendment, and to the overinterpretation of private landowner supremacy for which it has come to stand." It is ironic to recall that Radical Republicans passed that Amendment, at a time when a "Radical Republican" was one who favored freeing the slaves. The 14th Amendment was designed to protect the rights of freedmen. As interpreted now, the 14th Amendment means that The Emancipation Proclamation itself was unconstitutional! Fortunately, no one has brought that case - yet.

The Neo-classical economists' view of their proper role is rather like that in The Realtor's Oath, which includes a vow "To protect the individual right of real estate ownership." The word "individual" is construed broadly to include corporations, estates, trusts, anonymous offshore funds, schools, government agencies, institutions, partnerships, cooperatives, the Duke of Westminster, the Sultan of Brunei, the Medellin Cartel, Saddam Hussein, congregations, Archbishops, families (including criminal families) and so on, but "individual" sounds more all-American and subsumes them all. This is a potent chant that stirs people to extremes of self-righteousness and siege mentality when challenged.

The resemblance between Neo-classical economics and the Realtor's Oath is easier to understand when you learn that Professor Richard T. Ely, founder of the modern discipline of Land Economics, was heavily subsidized by the National Association of Real Estate Boards, the utilities, the major landowning railroads, and others of like mind and property interests.

When it comes to violating property rights, air pollution today is perhaps the greatest invader and confiscator of property. Where do economists stand? Once a few of them tried to say, following A.C. Pigou, "let the polluter pay," and in parts of Europe they still do. In our modern backward thinking here at home, however, it's not the polluter who is invading the property of others, nor the human rights of those not owning property. Rather, when you tell them to stop, the government is invading their rights. The wage-earning taxpayers must pay them to stop, else you are violating both the 14th Amendment and the "Coase Theorem," a rationalization for polluting now dearly beloved by Neo-classical economists.

Leapfrogging is when developers jump over the next eligible lands for urban expansion, and build farther out, here and there. ...

We have met the enemy, and it is US (Urban Sprawl). Let's analyze this beast, US. ...

Urban sprawl, which creates a psychological effect of great crowding, is not the product of development as such, but of leapfrogging. Leapfrogging means chaos, with development in the wrong places and times. Infilling, on the other hand, is anti-sprawl. It is the cure for sprawl.

A common belief is that the search of open space is the main force behind sprawl. You may test that by observing high density, cookie-cutter subdivisions scattered throughout the land. Within each such development, you are living at urban densities. It is when you get onto the freeway to commute, or shop, or take the kids to school or the dentist, or worship, that you experience open space. You experience it as a negative resource, an obstacle between where you are and where you want to go.

A favorite fallacy is that sprawl results from free individual choice. In fact, sprawl results mainly from subsidies to sprawl, enforced through taxation and/or utility rate regulation. Thus it is imposed, not freely chosen. The classic case, which exemplifies the whole genus, is postal service. It costs you 29¢ to send a letter across the street downtown, or from rural Idaho to rural Florida. The generic name for such subsidies to sprawl is "postage-stamp pricing" (a species of spatial cross-subsidy), which gives you the idea. ...

In British Columbia, people move around a good deal by car-ferry, because of the terrain. The Provincial Government ("The Crown Provincial") runs the system. There are many lovely little islands in the Straits of Georgia, between Vancouver Island and the mainland, favored by the wealthy, the exclusive and reclusive. Being more sybaritic than Henry D. Thoreau, and politically puissant, they have demanded and received car-ferry service. This service costs about $10 for every $1 in revenue. The resulting deficit is covered by raising rates on the main plebeian line, Victoria-Vancouver. Naturally, these cheap ferries attract new visitors to the islands, and new demand for land there.

Here is how we get urban sprawl with leapfrogging. Remember the last time you moved and went househunting? You saw some mouthwatering homes, but they were not for sale. You had to find motivated sellers, and pick from what they offered. It's the same with builders. They scour the exurbs seeking motivated sellers. Ideally the most motivated sellers would line up by distance from the existing city, but the market is not ideal. Each seller is moved by his personal circumstances, not the geographical location.

Potential builders are little concerned with the social costs they might impose, so long as others are to bear them. Thus, they sometimes settle for and build

  • on steep lands (like Malibu Hills) with flammable brush and erosion problems,
  • on flood plains (like Victoria Woods subdivision in Riverside),
  • on soils subject to liquefaction in quakes (like Northridge),
  • in canyons and arroyos,
  • on lands with limited access for emergency equipment.
  • They even build on lands without water supply, even in arid southern California, then demand water and get it, secure in the knowledge that Sacramento rejected a recent move to ban development in areas with no assured water supply. ...
Those are the carrots. A good stick is also needed. We have seen how leapfrogging results from the scattered locations of motivated sellers. We can motivate sellers near-in, and in compact increments as we expand spatially, by raising land taxes there. Proposition 13 makes this difficult, but not impossible: many special assessments have the essential motivating quality of land taxes, with a different legal form, that exempts them from Proposition 13.

I could wax rhapsodic about the results to expect from such taxation, but have done so elsewhere and will leave it with a word: visit Sydney, Adelaide, Brisbane, Copenhagen, or Johannesburg, which have made use of this principle to excellent effect.

These are basic issues, and call for bold actions. Do not waste your time on wimpish meliorism, or "Goo-goo" thinking. For example:
It is said we need a land use inventory. We already have lots of them: people have been classifying land for decades. The question is, what shall we do with them?

It is said we need "risk ratings." These are subject to manipulation and juggling, like benefit/cost analyses of recent ill fame. The question is, who will control the ratings, and to what ends?

It is said we need fire models. We have fire models; they were already chic in 1950. The question is, how to keep scattered homes out of fire-prone areas, where they make prescribed controlled burning nearly impossible. The question is how to keep the State and the fire insurance industry from cross-subsidizing these homes by averaging their risks in with others.

Rather, let us study how to emulate the model of Butchart Gardens, near Victoria, B.C. Butchart doesn't sound like a gardener's name, and sure enough, Mr. Butchart was a hardrock miner who attacked the earth and left a great ugly gash in it. Ah, but Mrs. Butchart, she wanted space for a garden, so she made one there. She rediscovered the truth that land is not just the matter that occupies space, it is space, always renewable and reclaimable. Now Butchart Gardens is one of the world's great beauty spots, drawing visitors from everywhere - in the summertime you hear every language there. Our decayed central cities, too, may bloom again like Mrs. Butchart's garden. Let us make it our model.  read the whole article

Eighteen Fallacies
  [this has the first 7; until I get the other 11, it hasn't been cross-reffed into the themes pages.]
1. "Water rights are real property" ... The evidence is, you do not find water licenses recorded like title deeds to real property. More important, you do not find them on the real estate tax rolls. Never have I heard a licensee demand to be taxed because he holds real property. ...

2. "Real Property is Sacred and Untouchable"  Wrong! Suppose this layman writer and the Oregon Chief Justice were in error, and water permits were real property. That is out of the frying pan, into the fire.

What does 'real' mean, applied to property or estate? It is not the opposite of 'imaginary.' No, 'real' is an elided English form of the French 'regal' taken into English when English kings spoke their native French. Real property is The King's.

We threw out kings in 1783, but not the royal powers. Rather, we transferred those powers to our State governments. By succession, real property means government property!

Every landowner is a tenant of the king or his successors in interest. The very word 'own' comes from 'owe.' An owner is one who owes. What he owed historically was fealty to his sovereign.

That used to mean bending the knee, kissing the royal foot, swearing allegiance, and showing up on demand to smite the enemy.

It has evolved into servitudes like eminent domain, police power, the public trust doctrine, and something else that our lawyers may have glided over, but economists underline: the tax power.

These concepts are basic to common law which has been brought into every U.S. state constitution (save Louisiana's). Moses was not just whistling Dixie when he quoted The Lord as saying "The land shall not be sold forever; for the land is mine, and ye are strangers and sojourners with me." ...

3. "You cannot take real property without compensation"  Wrong! Whoever said that has not been following zoning law. As a rule of thumb, zoning can take away about 85% of the use value of land before it is declared an unconstitutional 'taking' of property.

The owner must be left with some 'economically viable' use, meaning almost any use whose revenues exceed expenses, however small the net gain.

As to other property, well! No one has yet been compensated for losing the fruits of his sweated brow to the IRS, at rates which once soared as high as 90% in the top bracket.

4. "If property falls, America falls" Wrong, at least in my opinion. Property is not an end in itself; it is a means of getting resources put to their best use for the general good.
5. "The cost of water is passed through to consumers in higher prices"  Wrong! At last I'm in my own field. Prices are determined by supply and demand, not cost. If you sell in a national or world market, or even a competitive local market, you are a price-taker, not a price-maker. You can't pass cost hikes on to consumers; you have to eat them. ...

With dearer water you use less by controlling it better, switching from primitive furrow irrigation to sprinklers, spitters and drip.

This in turn lets you do new things like growing avocados on steep hillsides formerly barren, yielding more dollars of product for less water (and in this case on waste land).

The above facts point to a fascinating, portentous corollary: you can tax water withdrawals without wrecking the water economy.

On the contrary, such taxes (carefully crafted to be constructive) can encourage conservation, getting more bins and bales for the bucket, so to speak.

Americans are raised on anti-tax slogans masquerading as economic analysis, always presuming taxes destroy good incentives and wreck the economy.

Here is a kind of tax that raises revenue while strengthening the economy. ...

6. "You can't stop a landowner from pumping on his own land"  Wrong! You can even control his hunting and fishing there, and apply police power. As to pumping, it depends on whether he owns what is under his land.

If it is oil, we all know mineral rights are routinely severed from surface rights by sale, reservation or lease. Water can be subject to constraints, too.   ...

A simple solution to half our tractable water problems would be a severance tax on water withdrawals. If you can regulate it you can tax it.

A tax can be viewed as nothing more than an economic price charged by the owner of water (the state) for using its property. ...

7. "Economics is hostile to environmentalism"

Partly wrong, although some economists are guilty as charged. Economics, properly pursued, deals with how best to meet human wants. Recreation, fishing, wildlife, amenities, clean air, pure water, sustained resource supply, watershed protection, good health, and conservation are legitimate human wants.

Many economists, I confess and deplore, are blind to such values, and think only of maximizing GNP measured in the brutal old-fashioned way, developed during World War II for war's emergency purposes and never revised.

Others, cowed by cow college deans, dare not think at all, and write only of sustaining farm land values: damn the cost to others.

Many others, however, are leaders in developing environmental and resource economics. Today wise environmentalists, rather than sniping at all economists, are allying with the last kind.

Here are four reasons why environmentalists and economists are natural allies.
(a) Economizing is conserving. ...
(b) Subsidy wastes both dollars and ecologies. ...
(c) Correct economic analysis prescribes more water for fish ...
(d) Correct economic analysis presumes public trusts ...

You would be amazed to hear anyone say 'I will pay any price,' There are many documented instances of a person swearing under oath his land is worth no more than $X for tax assessment purpose and soon thereafter swearing again it is worth $15X when being condemned for a park or other public use, because he wouldn't sell it for less.

For Want of a Landlord

Henry George 100 Years Later: The Great Reconciler  
Henry George (1839-1897) is best known today for Progress and Poverty (1879). Eloquent, timely and challenging, this book soon became and remains the all-time best-seller on economic theory and policy.

In 1879, George electrified the world by identifying one underlying cause for two great economic plagues:

  • chronic poverty arising from insufficient demand for labor, and
  • cycles of boom and bust.

These twin plagues arose from concentrated ownership of land, compounded by land speculation. Large landowners and speculators (often one and the same) held the best land idle or underused, forcing labor onto marginal land and driving down wages. Collapse of speculative land price bubbles caused periodic slumps.

(By "land" George meant exclusive rights to use natural resources in a specified territory. It included mining, water, fishing, and timber rights, road and rail rights-of way, and some patents. George emphasized the high value and productivity of urban land, which facilitated communication and trade. Today, we would add to "land" such items as taxi medallions, telecommunications licenses and pollution "rights".)

George followed his analysis with a plausible, practicable remedy: eliminate all taxes except for a tax on land values. The "single tax," as it later became known, would invigorate the economy by breaking up large idle holdings, making land available to those who would use it. And it would suck the air out of speculative bubbles, damping the boom and bust cycle.

  • Taxing land is very progressive because land ownership is highly concentrated among the most wealthy, far more concentrated than income.
  • Taxing land is fair, because the community rather than the individual landowner creates land values.
  • Taxing land is economically efficient, because the owner cannot avoid a land tax ("shift" it) by choosing less-taxed options. ...
George toured the world as an immensely popular political activist, orator and folk hero. He died suddenly in 1897, while running a second time for Mayor of New York City. A hundred thousand mourners marched at his funeral.

In the US, "Georgism" melded into the populist movement, and later into the Progressive Movement. At the national level, the Progressive Movement dominated both major political parties for 17 years, 1902-19. At the local level, its influence continued through the early 1920s. Local property taxation was modified along Georgist lines: land assessments were raised relative to improvements and rates were increased substantially. California water districts financed by land taxes catapulted California to the top-producing farm state in the Union, using land that had been desert or range. California generated farm jobs and homes, while other states destroyed them by allowing well-connected speculators and "robber barons" to grab large tracts of land. A Georgist, Congressman Warren Worth Bailey of Pennsylvania, drafted the first Federal personal income tax law on Georgist lines: falling mainly on very high incomes from property. ...

Neo-classical economists give us only a hard choice: we may have equity, or efficiency, but not both. By contrast, George's program reconciles equity and efficiency. Think of it! George takes two polar philosophies, collectivism and individualism, and composes them into one solution. He cuts the Gordian knot. Like Keynes after him, George inspires us by saying, "Forget the bitter tradeoffs; we can have it all!"    Read the whole article

George's Economics of Abundance: Replacing dismal choices with practical resolutions and synergies

Introduction: Resolutions vs. trade-offs
1. Equity, Efficiency, and Incentives
a. Equity and efficiency
b. Reconciling progressivity and motivation.
2. Reconciling demand side and supply side economics
a. Aggregate. Consumption and production
b. Investing and Saving
3. Micro "structural" reform coupled with macro reform
4. Local, state, and national applications
5. Relieving labor without burdening capital
6. Urban renewal without subsidizing evictions
7. Contains urban sprawl, improves urban linkages among complementary land uses, without overriding market choices.
a. Taxing land sharpens market incentives via the leverage effect noted earlier.
b. Fosters resident ownership, civic participation
8. Reconciles common rights to land with private tenure
9. Paying the debt while also making jobs
10. Making labor cheaper to hire without lowering wage rates
11. Adding people and capital w/o diluting resource base
12. Fostering economy in government in the very process of raising revenue
13. Enhance evironment and conserve resources while making jobs
A summary of reconciliations
1. Couples equity with efficiency.
2. Couples progressivity with motivation. Abates concentration of wealth and power while widening the scope of productive ambition and enterprise.
3. Makes more jobs without inflation. Raises demand-side and supply-side together, "leveling them upwards."
4. Raises both inducement to invest and inducement to save, at any income level. Also raises saving by raising income level.
5. Couples structural reform and macro reform.
6. May be applied at local, state, and national levels, together or jointly, in small degrees or large.
7. Relieves labor of taxation without burdening capital, and vice versa.
8. Renews cities without subsidizing evictions.
9. Contains urban sprawl, infills and coordinates cities without superimposing planning on the market.
10. Fosters resident ownership and civic participation without laws against absentee ownership, or other use of compulsion, but in the very process of lubricating land markets.
11. Asserts common rights to land while strengthening private tenure. Permits of privatizing without giveaway.
12. Allows paying off public debts while fostering full employment through (true) fiscal stimulus.
13. Makes labor cheaper to hire while raising real wage rates (take-home pay, disposable income). Thus makes jobs without lowering wage rates or "making work."
14. Lets regions, nations, and the world add population and capital without diluting their resource bases.
15. Fosters economy in government in the process of raising revenue.
16. Saves the environment in the process of intensifying land use.
17. Smoothes business cycles without depending solely on contra-cyclical fiscal or monetary policy. Stabilizes and secures financial institutions with only minimal regulation.
18. Effects land reform and redistribution abroad and at home, urban as well as rural, without government expense, and without acreage limitations, working through free markets.
19. Equalizes credit ratings for land buyers without any controls over lenders.
Epilogue: how the public demonstrates its preference for resolutions over dismal choices

It is part of George's genius that his proposals solve one problem by resolving it with another, turning two problems into one solution. It is something like tuning up the orchestra for a concert, turning dissonance into harmony, and keeping the beat together, turning cacaphony into rhythm. It is the mark of good solutions that they reconcile and resolve, rather than simply "trade-off." [If you ever immerse yourself in mathematics deeply enough to find different proofs of the same proposition, you recognize the epiphany when it all comes together, and everything supports and confirms everything else. Then you know you have the right answer. Good ideas and good policies support and reinforce each other.]

That is what George means when he writes that "the laws of the universe are harmonious." That is what Founding Fathers like Washington, Jefferson and Franklin meant by a "natural order." Like them, George is a deist in spirit, a believer in the consistency of the universe. The concept that some things are more "natural" than others is not arbitrary. The clue that one has found the "natural" law is that it makes forces harmonize and team together instead of clashing, and neutralizing each other. The principle of constructive synthesis - a touch of Hegel - is another way of perceiving the value of turning cacaphony into harmony.

Economists today offer us mainly "trade-offs" and hard choices. For every good thing we must give up another, so net gains are just marginal. That is the approved posture: it makes one seem hard-headed, worldly, and practical. Too much positive thinking sounds suspiciously optimistic, and invites rebellious cynical muttering that "there ain't no free lunch." It goes back at least to Malthus, who offered mankind the hard choice of food vs. sex. That sort of thinking is what made people call economics "the dismal science."

A true resolution is much more to be desired. To get one good thing we get a second one as well. It is remarkable how many "hard choices" are turned into benign resolutions in George's program. He is a genius at finding the essential harmony of interests now concealed beneath confused thinking. Instead of a dismal trade-off, there is a "free lunch," or "synergy": the whole is greater than the sum of its parts. Such grand resolutions, when possible, deserve to be called "true win-win solutions." 

The most obvious such true win-win solution is putting the unemployed to work. Recognizing this truth is no monopoly of George: Keynesian economists long insisted that there is no social cost in putting the unemployed to work. It is a measure of the bankruptcy and myopia of many economists today that even those voices are muted, and that obvious gain is denied: working is called a "sacrifice of leisure," just another trade-off. Unemployment has become "job-searching." [Before long, some economist will proclaim that sleeping on heating grates is "home-searching."]  It is more likely a sacrifice of burglary, vandalism, drug-use, jail time, loitering, looting, collecting welfare, and sullen misery. Trading such bad time for the gratification, pride, on-the-job learning, and moral uplift of working is not a trade-off, but a double gain. It is a true "free lunch," if you will.

Many economists today react to such ideas with reflexive disbelief. They put down optimistic claims by calling them "panaceas," too good to be true. TAANSTAAFL ["There Ain't No Such Thing As A Free Lunch."] is their slogan; cynicism their preferred posture. However, false pessimism is just as false and damaging as false optimism. A truer slogan is TITSTAAFL: "There Is Too Such a Thing As A Free Lunch." It's rather a question of WIGGI?: "Who Is Going to Get It?". Many dismal alleged trade-offs are just someone's mental blocks that stand athwart the path to abundance, or, worse, ways to control and exploit us. Often, in fact, "we can have it all." Is it too good to be true? Let us itemize the many resolutions of alleged trade-offs and standoffs that George's program will achieve. ...

At the state or local level, George's program is the answer to California Governor Pete Wilson' dilemma, and every governor's dilemma:

  • it untaxes and attracts capital, and encourages capital formation, without giving away the store, or untaxing the rich, or starving the schools and police.
  • It raises state revenues from the richest people while attracting business and wealth with the very same stroke.
The unique, remarkable quality of a property tax based on land ex buildings is that you may raise the rate with no fear of driving away business, construction, people, jobs, or capital! You certainly will not drive away the land, however high the tax rate. Not one square foot will walk out of town. The only bad thing to say about this tax's incentive effects is that it stimulates revitalization, and makes jobs. If some people think that is bad, maybe they are the problem.

So George's simple program not only reconciles efficiency and equity, it squares taxes and incentives....


Dismal trade-offs, deadlocks, and standoffs are just mental blocks and smokescreens. Henry George began with a quest for justice in sharing the rent surplus. He found that justice and efficiency are not at odds, we can have both. This trade-off that many economists expound is a stall, a put-off to enervate and unman us so we won't do anything. It may ease the conscience to think justice must be sacrificed for efficiency, and schools starved and libraries closed to free up incentives, so nothing, really, can ever be done. We all feel compassion by nature but, to survive and stay whole in this world of beggars and bandits, learn to harden our hearts and cork it in. We learn to screen out evidence of suffering and injustice, and rationalize what we cannot deny. This mindset, while understandable, is unaffordable in a period of dangerous national decline, and growing division between haves and have-nots.

What we have shown here is not just that we can have both justice and efficiency, but more, we cannot have either one without the other. If we don't share rents efficiently, in the Georgist manner, social and political pressures will continue to cause inefficient sharing and eventual dissipation.

Economic discourse is afflicted with pessimists who firmly cling to mutually inconsistent positions at the same time, each posing an insoluble problem. Some, for example, believe the world is racing to starvation, and favor limiting demand through birth control, while in another context they deplore "overproduction," or "underconsumption," and favor choking off farm production to keep farmers from losing money. George, of course, would see demand as the answer to supply, and land as the field on which the twain may meet and satisfy each other, leveling them upwards.

Again, some favor cheap power and good roads for rural areas, regardless of cost, and then favor low-density zoning to keep people out. George, of course, would favor infilling to make full use of short interior lines at high capacity, and lower cost per customer. Read the whole article

Taxation of interjurisdictional e-commerce

Interview: Is There a Conspiracy in the Teaching of Economics and History within the American Education System?

Q: ... How, why and by whom do you think the teaching of economics in America has been corrupted?

Mason Gaffney - Generically, it goes back thousands of years: every system that divides mankind into rentiers and proles requires a rationale. Those with leisure have time and resources to provide it: sometimes directly, but usually through hired guns.

TPR - Do you believe this purchasing of economic theory still going on today, and if so, what well-known economists do you suspect of being involved with it?

MG - It pervades the culture of the profession. Most members are looking for grants and promotions to put frosting on their cake. They call it, "Responding to the incentive structure," giggle nervously, and shuffle the blame onto "the system." They abandon personal moral responsibility, and quickly become part of the system themselves. They rationalize their own dereliction by attacking those who expose it, turning themselves into a generation of vipers. Grants come from those with money. Follow the money trail. Most administrators are even worse: they push faculty members to get outside grants, whatever the source. They only occasionally decline one when faced with embarrassing publicity.

Look at the names and histories of major grantors and patrons of the past: Stanford, Rockefeller, Russell Sage, Carnegie, Hewitt, Cornell, Wharton ... Look at the governing boards of major private and public institutions. It's all there to see, for those that have eyes to see, minds to draw the obvious conclusions, and hearts to carry on the good fight for the public interest. Upton Sinclair spelled it out pretty well back in 1923 or so, in "The Goose Step: a Study of Education in America".

It's partly a matter of coopting people by dangling money before them, and partly a matter of selecting and supporting those whose ideas are already more simpatico to the major grantors. It's hard to tell the difference, so it's hard to say who's been corrupted, and who corrupted himself at an early age....

All that interesting Georgist history is blanked out of most history books.

TPR - If what you're saying is true, this is a pretty big story; why aren't you doing this interview with Larry King, or at least Geraldo? Do you think the press is getting paid off, too or do you just need a better press agent?

MG - Once the public domain was handed over to a handful of rich, politically connected people, they consolidated their position by taking control of the media, of education, and the churches. This has become so much a part of our being that people hardly think about it, and what it implies. No one needs to pay off the press: in most cities, the biggest single downtown landowner is the press itself. No one needs to pay off radio and TV stations: their spectrum assignments are the basis of their being.

There are all kinds of corruption.
  • There are physics Profs. who consult for nuclear firms;
  • entomology Profs. who consult for pesticide firms;
  • Profs. of medicine who switch mothers' eggs around;
  • Profs. of natural resource economics who are promoted for protecting the privileges of water hogs and land speculators;
  • Profs. of agronomy who tailor their work to the needs of giant landowners; etc.

TPR - What's your take on the Pennsylvania story? Are the landlords running scared from the new 'Whiskey Tax Rebellion'?

MG - Pennsylvania allows its cities what is called "local option" on property tax policy. This gives each city the option of down-taxing buildings and up-taxing land. An accelerating number of cities have chosen this option, the latest being Allentown.

Landowners can't run, not without leaving their land behind; and the idea is not to scare them, but show most of them they have more to gain from un-taxing buildings than they lose from up-taxing land. Un-taxing buildings encourages new building, with all the gains that brings. When a city gets old and rundown, a lot of people get the point.

The opponents have several points from which to attack. Now they are focusing on the State Legislature. As it happens, Harrisburg itself is one of the cities that has adopted the option of down-taxing buildings, and the good results may be seen by looking out the window; but many legislators get their ideas and motivations from elsewhere. The great danger to the movement in Pa. is that about when half the cities will have chosen to down-tax buildings, the legislature will follow the bad example of California and replace the property tax by raising state income and sales taxes. ... 

TPR - Explain exactly what would happen if America began shifting taxes off of everything else and onto land value.

MG - Exactly? The effects are too great, too pervasive to predict exactly.

  • It would unleash massive forces of production, exchange, capital formation, and building, forces now trapped and frustrated in the coils of our complex, counterproductive tax mess.
  • It would enhance the supply of goods and services while simultaneously lowering taxes on the poor and the workers, thus reconciling the needs of both efficiency and equity, in one stroke.
  • It would raise taxes on the richest Americans, and alien landowners, too, without diluting in the least their incentives to work, to create capital, or to hire workers: it would actually fortify those incentives.
  • It would spring people loose to renew large parts of our older cities, and rehab what they do not re place.
  • It would let local school districts support education at much higher levels than now, without fear of driving away business.
  • It would satisfy the demand for housing on land that Nature suited for housing, without invading flood plains, steep slopes, remote deserts, and other places that cost society dearly to serve and rescue.
  • It would raise the demand for labor, taking people off welfare and keeping them out of jails.

One could go on at length, but Henry George summed it up in three words: "Association in Equality." Civilization advances when those conditions are met, and declines when they are denied. America has been denying them; we are all paying the price.

TPR - For an economics professor, you're said to be quite an expert on the environment, what's the connection?

MG - Economic analysis, properly used, can serve the cause of environmentalism. The neo-classical economists abused both economics and the environment badly, as a byproduct of their drive to discredit classical political economy, and Henry George. John Bates Clark wrote that land is not scarce, that mankind can convert capital into land without limit, and create as much as we please. He wrote that natural resources have no value to mankind until and unless they are privatized; that privatization itself is what creates value. Our universities churn out thousands of new economists yearly, imbued with such attitudes. When Rachel Carson kicked off the new environmentalism in 1962 with her "Silent Spring," most economists trashed or disdained her: they 'd been trained that way.

Faced with the obvious growth of environmental sentiment, economists dealt with it as they have with other problems: they absorbed it in the discipline, then marginalized it. Now they can say it is part of economics, while they proceed to ignore or trivia lize it in their major policy pronouncements, wherein endless territorial expansion continues to be not just a goal, but a necessity to make the system work.

The legitimate goals of environmentalists, they coopt and distort. Here are two examples.

  • They'll tell you that it's not OK to promote oil conservation by taxing withdrawals, but it is OK to do so by monopolizing the industry - monopolists are our best friends.
  • They'll tell you it's not OK to check polluters by taxing their effluents, but it is OK to give them property rights to pollute, based on past emissions, and then buy those rights back from them at their price. You think I'm just making that up? I wish I were! The EPA is actually applying that idea around the country.
Thank you, John B. Clark; thank you, neo-classical economics. It all follows from Clark's efforts to avoid any recognition that natural resources are common property: in this case, the air itself is turned into private property. Your very right to breathe, you have to buy from major owners of the air. And how did they establish that ownership? By their track records of dumping their crud in the air in the past. It beggars belief, but there it is: it shows what the war against Henry George has made of the discipline of economics.

TPR - If Earth's ecosystem and poorest people will be the largest beneficiaries of the reform you advocate, how will it ever gain public acceptance in America's increasingly money-driven political system? If the press will never acknowledge it and the education system is so lost and blind, how can this reform ever happen? Are Georgists like the character in 1984?

MG - Every system must purify itself from time to time, or be destroyed. How long that takes depends on how strong a base you started from, and how strong your rivals are. The USA started from a strong base, built in part by the Progressives (including many Georgists) and the New Dealers (in spite of some of their destructive moves). Now, our leaders think we are riding high, just because the stock market is rising, even though real wage rates have fallen for 25 years, our debts are staggering, our liabilities and contingent liabilities exceed our assets, our biggest growth industry is building jails, our population is losing its literacy, our major cities have decayed, and so on. Marx was right about one thing, at least: the system carries the seeds of its own destruction.

Our leaders have done a good job of subverting our rivals, in part by forcing on them the ideas of neo-classical economics, the ideas that originated as part of the anti-Georgist campaigns. Japan gave us a good run for a while, but got suckered into aping our worst habits, and hence a good old-fashioned American-style land boom and bust that has knocked them out of the race for a while. Most of S.E. Asia has now followed suit.

It's a delicate balance. The haves can brainwash the have-nots just so long, until reality breaks through, as in 1929. When it does, you want to be ready with a plan tailored to the times, which Georgists at that time were not. Meantime, we keep the idea alive by recording and publicizing important facts, such as that the prosperity of Hong Kong was a product of Georgist policies; likewise that of Taipei, Sydney, Johannesburg, and other great cities.

  • We support object lessons like those in Allentown, Pa., and go for a really visible one like Philadelphia.
  • We combat moves to raise sales and income and payroll taxes, and awaken people to the benefits of lowering them.
  • We awaken people to the possibilities of including more land income, and less payroll income, in the base of the income tax.
  • We support efforts to democratize the media.
  • We alert people to the corruption of academia and the kept think-tanks, and provide alternative venues by mobilizing the resources of the few Georgist-oriented foundations.
  • We get on social action committees of various churches, and try to give their well-meant but often foggy-minded efforts some clearer focus, with more punch and less platitude.
  • We remind people of their common rights, and the history of common property in land.
  • We expose and ridicule the inconsistencies and hypocrisies of kept economists, hoping that embarrassment will convert those whom truth will not.
  • We avoid the temptation to play Jeremiah, but seek to join the system and make it work better, even as Henry George and his friends did.  Read the whole article

Megabucks for Negabucks: Solving the Water Crisis

... When Henry George wrote “We must make land common property” it was in a place and at a time when most land in sight had been privatized only recently, using crude methods. “Force and fraud” were not dim memories in 1879, but a living presence. So George’s phrase did not strike people then as being any more shocking than it is today to remind them that the public domain, with its pasturelands, waters, rights of way, the air, radio spectrum, fish, mineral riches and timber, belongs to us all in common. ...

The California Constitution and Water Code, like those of most states, are explicit that “The waters of California belong to the people of California.” Water is not private property, evidenced by its not being taxed as such (except indirectly, as it adds to the value of fee simple land). Water is not, therefore, subject to the limits that Prop. 13 (and cognate laws in other states) impose on property tax rates. The State, as owner, can presumably charge whatever the legislature decides, without its being considered a tax at all. Water claimants would of course resist strenuously, with all the lawyers and pawns and media that money can buy, and social pressure sway, but the public has a strong case.

It’s not just water per se, but also the lands under what were originally shallow waters. Most coastal cities have increased their areas greatly by filling in shallow waters.  ...

There are four major ways that individuals and corporations acquire the use of waters. One is by riparian rights. To own the bank of a lake or stream is to have a right to the water, theoretically “undiminished and unpolluted,” that nature put there - subject to the equal rights of other riparians, but not of anyone else.  ...

A second way to claim water is by owning land overlying ground water, and the aquifers that store it.  ...

A third way to claim water is by “prior appropriation.” The key rules are “first in time, first in right”; “due diligence”; “beneficial use”; and “history of use.” The precondition for putting water to “beneficial use” is owning land on which to spread it.  ...

Part of appropriating water is securing sites for dams and reservoirs and rights of way, either from public domain or from private owners by use of eminent domain. A major case is San Francisco’s seizure of the site of the Hetch Hetchy reservoir inside Yosemite National Park. This scenic site on the Tuolumne River once rivaled Yosemite Valley itself, on the neighboring Merced River. Rent has been $30,000 a year, fixed since the 1920s. The Administration is now proposing $8 million a year. However this case goes, the charge is for the site alone, not for the water or the power drop. San Francisco seized so much more than its own needs that it sells 2/3 of what it takes to other cities, for a fat profit that helps keep land values in San Francisco nearly the highest in the U.S.A., and its housing the least affordable.

A fourth way to claim water is by getting “sweetheart” contracts from large supply systems: Federal water from the Bureau of Reclamation; State water from the State Department of Water Resources; and mixed-source waters from the giant MWDSC. No sooner are these contracts inked than learned counselors go to work to convert them into perpetual obligations of the taxpayers and other ratepayers. The original 40-year contracts that the U.S. Bureau of Reclamation executed on the 1950s at giveaway prices came up for renegotiation in the 1990s, and only a few old timers even remembered their origins. Meantime the once-surplus water had multiplied many times in value, and the contractors were busy securing rights to resell water that they buy for some $10 per acre-foot to coastal cities for $200-$500 per acre foot. A rather shocking decision by Senior Judge John Wiese, December 31, 2003, requires the Feds to compensate the Tulare Lake Basin Water Storage District for withholding some of “their” water to comply with the Endangered Species Act to save fish downstream. Said District is a front for the J.G. Boswell Company, owner of 200,000 (sic) acres in the Basin.

What’s the moral? We can turn “Negabucks into Megabucks” for state and Federal treasuries by charging water takers a market price for what they get, instead of subsidizing them to get it, as now. The stakes are huge; the barriers are surmountable. Besides raising revenues we would institute a regime of “demand management,” promoting water conservation in the most economical way. We would solve our factitious “water crisis” and “revenue crisis” in one stroke. Read the whole article

Oil and Gas Leasing: a Study in Pseudo-Socialism
... Those who do define Socialism, explicitly or implicitly, use the word for different things. A major difference, treated here, is between Managerial Socialism (who decides) and Distributive Socialism (who gets). These may overlap, but are independent of each other and often conflict. For example, Riverside, CA, owns its own electric utility (on whose Board I sit, losing battles). This is Managerial Socialism, municipal style. Its traditional rate structure includes large elements of cross-subsidy, mainly taking from the lower middles for the rich, tempered by crumbs thrown to the very poor. The same is true of our water system, and of most municipally owned and managed utilities around the nation. Water and sewer service are common examples of Managerial Socialism (from which the mnemonic "sewer socialism"). They have little in common with Distributive Socialism. ...

... Another form of Managerial Socialism is direct administration of public lands. Our National Forests are an example. ...

Distributive Socialism, in contrast to Managerial, means tapping surpluses in the private sector and using them for the public good. The revenues may

  • provide public services that are available to all, like schooling and social security; or
  • be used to abate regressive taxes; or
  • be used to finance social dividends paid in cash, as in Alaska.
  • Revenues may also be used to finance public works, even though these benefit only a few specific landowners.
This becomes Distributive Socialism when the enhanced land rents are tapped to recoup more than the allocated expenditure. (If only expenditures are recouped, it is more like a contract between the state and the landowners.)  ...

Thus, to define Distributive Socialism we need to define "surpluses." These are primarily rents from lands and resources given by nature. In an open tax jurisdiction, labor and capital are mobile and their supply is elastic; only land is fixed. Land rent is the basic taxable surplus. Where there is no land rent, an attempt to levy any tax can only abort production and land use, rather than collect the tax. Where is there no land rent?

  • First, there is no rent generated on "marginal" land that is just barely worth using at all.
  • Second, and more generally, there is no rent generated by marginal increments of labor and capital applied on any land, from the best to the worst.
  • Otherwise, all production on land generates some rent, which is a taxable surplus. ...

Capital, unlike land, migrates among taxing jurisdictions. The return to reproducible, depreciable capital is not, therefore, generally a surplus. Capital differs from land. Capital has to be attracted, and, if domestically generated, dissuaded from emigrating. It is true that in the short run existing capital, if affixed to land, cannot be exported. Its returns thereby become a temporary taxable surplus -- hence the name "quasi-rent." Capital can still be dissaved, however, through neglect of maintenance, and will not be replaced. The demonstration effect of disappointing old investors' earlier expectations will have a high cost in repelling future investing by them and others. Old buildings, unmaintained, will shed blight on their surroundings. Non-replacement, in a dynamic world, guarantees early obsolescence. Capital finds many subtle ways of emigrating, or being disinvested and consumed. Its yields are not really a taxable surplus when we factor in the consequences of trying to tax them: withering away of the community. ...

Distributive Socialism, then, means tapping land and resource rents for the public. On the public domain, acknowledged to be public property, the institutional basis of Distributive Socialism is fully in place. We need only apply a good leasing system, keeping rent payments up to current values. On fee simple lands, Distributive Socialism means and requires modifying tax systems to rifle in on rents. ... 

Whether on public domain or fee simple lands, Distributive Socialism has three compelling attractions.

  • One is, it requires no Managerial Socialism; it may work through the free market. It does not preclude elements of Managerial Socialism, where these are otherwise desirable; it simply does not require them.
  • The second attraction is that it lets taxes be progressive without impairing incentives. Taxes that rifle in on rents are progressive and distributively socialistic because the ownership and control of rent-bearing lands is highly concentrated in a few hands.
  • The third attraction is that taxes on rent may be heavy without impairing incentives, precisely because rent is a surplus. The land-tax component of the existing property tax is a good model. With this tax, there is no "taxable event" required. Taxes are simply due periodically, based on an external assessment of the land's market value, which in turn derives from rent of its highest and best prospective use.

Most political leaders live and orate in a world of dismal choices and trade-offs. To them, there is no cutting the deficits, either state or federal. We must cut taxes or lose jobs. We must make taxes regressive or destroy useful incentives. On the other hand, once we define, identify, and rifle in on rent as taxable surplus, those hard choices vanish. We can have higher taxes and more jobs, both at once. We can tax progressively while simultaneously enhancing incentives to produce and save.

Likewise, on lands still in the public domain, we can rifle in on rent by framing and administering a good leasing policy. Leasing does have some transaction costs, but the private market does it anyway. There is a reasonable, if less than perfect, track record.

  • Ground leases are common in downtown real estate, nationwide, even under imposing structures like the Empire State Building, and Rockefeller Center. 
  • The Irvine Company, holding 20% of Orange County, California, has long declined to sell land, but only lets it for intermediate terms.
  • Much of Hawaii is developed on the same terms.
  • Most oil and gas is developed by lessees on private land, yielding large rents to the lessors.

Why cannot the U.S. Government as lessor do what private lessors do, extracting the surplus for the owner? Here we meet the obstacle of Pseudo-Socialism, to which we turn.

Pseudo-Socialism is what happens when resources in the public domain are leased below a market rental, giving away part of the public interest. That has the effect of installing the lessee as though he were the owner. The BLM, leasing grazing privileges on Federal lands in the west, has fallen into this pattern conspicuously and notoriously, subject to pressure from western Senators who have the power of many votes in the U.S. Senate relative to their state populations. The dollar values are small, but the object lesson is visible, depressing, and cautionary.  ...

Who buys to hold these vast reserves for distant future use? They are of investment grade only for those with waiting power. Unripe lands and resources are probably the most closely held assets there are. Poor people and small businessmen need busy capital right now. Only a few of the wealthiest people have the deep pockets and slack money to buy far ahead, to maintain high reserve/output ratios. These markets in far future values are their special preserve. ... 

... The impact of land taxes is analogous to that of credit sales. The specter of future taxes is capitalized into lower current land prices. They in turn let one buy cheaper up front, in return for a higher level of deferred payments. The net effect is like extending permanent credit on equal terms to all potential buyers, something private credit markets never do or could be expected to do.

Thus, the property tax, especially on land, is twice effective as an instrument of Distributive Socialism.

  • First, it rifles in on the rent surplus and socializes it.
  • Second, it democratizes the ownership and operating control of land.

Thus it achieves something akin to the "worker control" that is an ideal avowed by many modern Socialists, melding egalitarian distribution with egalitarian management and control. To be sure, it does so in a small-business framework, an ideal that is traditionally Populist, not Marxist. However, in this new post-Communist age, when Socialists are seeking new ways to express their yearnings for the good society, they might want to reconsider the value of this approach to worker control. Perhaps Marx, like other reformers of his generation, was oversold on the economies and inevitable triumph of large scale capital and organization, and the substitution of capital for labor. Perhaps small is beautiful, after all. ...

Here are four corners of an effective policy for socializing rent from public lands: participate in revenues; control time of lease sales for the seller's best advantage; participate in exploration; and participate in marketing. Some detail follows. The writer has elaborated the points elsewhere.  ...

What must be inculcated in everyone's thinking is the essential difference between competition with front money, and competition where payments are deferred.

    • The first is limited competition, with places reserved for an affluent few.
  • The second is evenhanded, democratic competition on a more level playing field, where preferential access to credit confers no differential advantage. This is the condition under which Distributive Socialism can coexist with, and reinforce, a free market economy. It is achieved on fee simple lands by subjecting them to heavy land taxes, whereby newcomers can buy in at low prices in return for paying more over time. It is achieved on public lands by writing leases with high lessor participation over time, and low bonuses required up front. Read the entire article
Property Tax: Biases and Reforms
Priority #1. Safeguarding the property tax
Priority #2: Enforce Good Laws
Reassess Land Frequently
Use the Building-Residual Method of Allocating Value
Federal Income Taxes
Priority #3. De-Balkanize Tax Enclaves
A. Rich and Poor
B. Timber and Timberland
The Role of Timber and Timberland
Two More Areas Deserving Attention
  • Offshore Oil
  • Tax All Natural Resources Uniformly and Comprehensively
Priority #4. What Tax to Fight First?
Priority #5: Make Landowners Pay Their Taxes

"Make no small plans: they have no magic to stir men's blood," quoth Daniel Burnham. As a successful architect and planner, he knew how to stir his clients' blood. However, his ringing phrase is negative and preemptive, hence overstated. Leo Tolstoy noted in War and Peace that wars are won and lost by the sum of individual confrontations on chaotic battlefields, where generals lose control. Folk wisdom says "The Devil is in the details." We do need small plans, lots of them, to implement big visions. My hat is off to the trench warriors who are advancing the two-rate property tax reform plans in Pennsylvania and New York, one small city at a time.

Let's rephrase Burnham in the affirmative: "Make big plans: they have magic to stir people's blood." Big Plans imply Grand Visions. Henry George had few peers at stirring his hearers' blood, and agreed.

"If you would move men, to what shall you appeal? Not their pockets, but their patriotism; not selfishness, but sympathy. Self-interest is a mechanical force, but in loyalty to higher impulses men will give even life."

Big Plans and Grand Visions inspire small ones. They also help orient and coordinate them. They help us divide the major from the minor, to direct our work most efficiently. This is what I will attempt here.

Big Plans can also scare people, it is true. We see this right now when drastic changes and new philosophies are moving in Congress. That does not mean they won't prevail, however. They scare some because they move many others. Abstract philosophies, living only in intellectual undergrounds, build up slowly until suddenly they take command. This is how change occurs.

Superficially it seems "sudden," but intellectually the way has been paved by years of Grand Visions and Big Plans.

The upshot is, we need Big Plans with Details Ready. I speak here of Big Plans with magic to stir the blood of those who see the benefits of supporting government from land and resource rents. I'll sketch the big picture, where details fit in, and how they all fit together. Read the whole article

The Relationship Between Property Taxation and the Concentration of Farm Land Ownership

Rent Seeking and Global Conflict

National governments originate historically to acquire, hold and police land. Other functions are assumed later, but sovereignty over land is always the first business. Private parties hold land from the sovereign: every chain of title goes back to a grantor who originally seized the land.

When economists today speak of "rent-seeking" they usually are thinking not of basic land rent, but in subtle and sophisticated terms, looking at dribs and drabs of transfer rent derived from contracting advantages. They develop abstract models for gaming optimally with imperfect information, and so on. By emphasizing the arcane while ignoring the basic they are in danger of matching the proverbial expert who fine-tunes all the details and elaborations as he forges on to the grand disaster. ...

We would be more useful to statesmen if we looked first at rent-seeking in the grosser sense of "land-grabbing", where the whole bundle is at stake. When William of Normandy conquered England the prize was land rent, all of it. He and his retainers dispossessed the local rent-collectors. It was simple, gross, and basic, and much more consequential than the trivial rent-seeking we model today. The bulk of the natives may have been affected only marginally: they just paid Lord B instead of Lord A. But it made all the difference to Lords B and A, the ones who made basic decisions about global conflict and cooperation.

Again, from the 17th century Europeans invaded North America, dispossessed the natives and each other, until today we meet here, overlooking beach and ocean, paying our daily rent for a little slice of land which has been won and kept by a long chain of wars.

The roof over our heads is different, it is the product of capital formation. Someone saved from income, and paid workers to construct the building. Its present value is that less the obvious depreciation and obsolescence, so it is rentable today mainly for its appreciated site, to which therefore an economist or an appraiser must impute most of the market value here.

But the site never was nor could be the product of capital formation. It pre-existed man, who could only acquire it by taking. It is fair to say that throughout most of history that is what warfare was about, seizing and holding and policing land. This is not to deny ancillary causes and issues of war, such as disputing the pathway to Heaven, ethnic pride, paranoia, acquisitive genes, and a leader's need to divert people from domestic problems. Economists should certainly make it their business to address the last, a major source of global conflict. ...

Economists conventionally bury this point when they submit that "national defense is a public good".

  • "Defense" is a loaded word which rationalizes as it describes. "Military spending" is more neutral, and will be used here. It is worth remembering that the German Schutz (as in Schutz-Staffel) and Wehr (as in Wehrmacht) both translate as "defense". Lebensraum is a more forthright term, and explains much more about Nazi aggressions.
  • "Public good" says that all gain equally. But that is not true even of pure defense proper. What is defended behind the defense wall is land previously seized. The Lords and Barons have much at stake; the serfs and vagrants very little. Rent is what is being defended, along with, no doubt, traditional feelings of machismo and some local folkways and mores.

Wages, as well as the return for capital formation, ultimately need little defense because they are economically functional. They are paid for real service and sacrifices, and will command a return in almost any viable system. Labor is also more migratory. "Fixed" capital also migrates economically as capital recovery funds are reinvested elsewhere. Land, in contrast, does not migrate among nations. Nations are defined as areas of land.

But it is outside the defense wall of the nation proper that rent-seeking is most dynamic and destabilizing. Military force (often in tandem with finance) is used to project sovereignty into foreign nations, and over no-man's-lands like the oceans, polar regions, radio spectrum, and outer space.

Offshore rent-seekers are of two general kinds.

1. "Caciques." Cacique is a generic term for local cooperating rulers from the native population. ...

2. Rent-seekers of the second kind are U.S. or allied multinational interests, mostly corporations. The cacique is expected to assign to them, or be complaisant in their taking concessions and resources like minerals, transportation routes, communications, bank charters, plantations, etc.

Natives normally control more of the traditional resources like farmland. Foreigners specialize more in less visible, more novel and sophisticated resources like

  • undiscovered minerals (exploration rights),
  • navigation rights,
  • radio spectrum,
  • overflights,
  • bank charters, etc. ...
More destabilizing yet is the ambitious rent-seeker offshore, who finds his biggest gains in the riskiest ways, ways that unfortunately impose high risks on the U.S. The biggest gains to rent-seekers come from buying in on the ground floor, cheap, when tenures are precarious or uncertain.

Then one invokes the U.S. armed forces and the sanctions of ancillary statecraft to raise the value of one's acquisition. The three main concerns are

  • to firm up precarious tenures (as by supporting the government that granted them);
  • to hold down taxes (as by lending the U..S. armed forces); and
  • to avoid pure competition (as by giving preferential access to the U.S. market, or Pentagon procurers).
There have been spectacular success stories. Aramco is one. It originated in 1933 with a capital of $100,000. By 1970 it was valued at well over $5 billion. Of course that increase might represent accumulated capital flows from the US owners; but such was not the fact.

There are four sources of value of foreign holdings:

  • capital flows,
  • plowbacks,
  • appropriations, and
  • appreciation.

In many cases like Aramco the last two far outweigh the first. But they are products of statecraft and force, not of capital inputs proper.

Tenure granted by unstable governments is not worth much, and is therefore cheap to acquire. In 1960, for example, Patrice Lumumba pledged a substantial share of the Congo in return for a relatively modest loan from a Wall Street financier.

Of course there are also failures and losses, and someone might even try to show that aggregate losses exceed aggregate gains. But Adam Smith observed long ago that when an occupation offers a small number of extremely high rewards, its attractiveness is enhanced out of all proportion to their aggregate value. It is not just the successes, but all the attempts that provoke global conflict. ...

The views above have been characterized by some as "Marxist", because of the explicit recognition of special class interests. If this be Marxism make the most of it; the point if any is ad hominem. But the views here differ from Marx's.

  • For one, Marx was an underconsumptionist who attributed imperialism to a search for overseas markets, not rent-seeking.
  • For another, Marx made no sharp consistent distinction between land and capital.
The present views point toward specific policy changes. To minimize global conflict, a nation should use its tax system to recoup rents from beneficiaries of its statecraft. ... Read the whole article

Rent, Taxation, Dissipation and Federalism

I. The issue
II. Sources of rent
III. Dissipation of rent before the fisc takes it: what and how?
A. Dissipation means waste and destruction or suppression.
B. How rent is dissipated.
C. Open access followed by tenure: rent-seeking institutions.
IV. Dissipating rent via public spending
A. Taxes and lease provisions need not twist incentives.
B. Public spending of tax proceeds may dissipate rent.
C. History of recognition of this spending effect
D. Successful compromises with the principle.
1. Barriers to immigration or sharing.
2. Selling voters on the benefits of immigration
E. Less successful compromises with the principle
1. Public works.
2. Subsidized public works in tandem with exclusionary zoning
3. Hocking the revenues
V. Solutions
A. Socialize rent at the national level.
B. Limit benefits to citizens per se (not to landowners per se).
C. A social dividend to citizens is the obvious route.
D. Return rents to local school districts in inverse proportion to local tax base per capita (the Colin Clark principle).
E. Promote James Madison and Neville Chamberlain to elder statesmen emeritus.
Read the whole article

Rising Inequality and Falling Property Tax Rates

Vanishing Farmers and Unaffordable Farms
The Vanishing Middle Class;  Gini Ratio
The Rise of Land Quality in Vast Farms
Rising Land Share and Rising Ratio of Price to Cash Flow
National Data
Concentration of irrigated land
Land Concentration for Farms Ranked by Sales
Lack of buildings on latifundia
Lack of family labor on latifundia
Comparisons Among States
Lesser Improvement of Land in States with Larger Farms
Urban Influence
Association of Property Taxation and Land Improvement

It is a common belief that property tax relief is "good for farmers." It certainly raises the private share of economic rent. That in turn raises the investment grade of farmland and encourages its purchase as a store of value, a place to park slack money. This may be at odds, however, with using it as a vehicle for enterprise and an outlet for workmanship. Lower farm property taxes are associated with lower ratios of capital to land, and labor to land, both over time and among states. They are also associated with bigger mean farm size and less equal distribution of farm sizes.

In the sections that follow, I first document the rise of inequality in the distribution of farmland that followed a sharp drop in farm property tax rates after 1930. Then I show, by cross-sectional analysis, a positive relationship between higher property tax rates and more intensive use of farmland, which in turn is associated with more equal distribution of farmland. Conversely, I find property tax relief associated with underuse and underimprovement of land.

A priori, a tax on buildings works to suppress building and to penalize smaller farmers, whose building to land ratio is higher than that of bigger farmers. The findings seem to show, therefore, a stronger countereffect, proincentive and pro-subdivision, of the other part of the property tax, the part based on land value.
Now, however, 34 percent of all irrigated land is in the top bracket, farms of 2,000 acres and over. (10) Control of irrigated land means control over water. Control of water gives control over arid lands roundabout. Ownership and control based on water have become highly concentrated. For farms with irrigated land, GR = .82, (11) substantially higher than the GR of .76 for all farms. ...

To sum up,
  • rising acreages mean there are fewer farms overall.
  • Rising labor prices per farm mean aspiring farmers who lack prior wealth can no longer buy in.
  • Rising Gini Ratios mean acreage is less equally shared among a given number of farms.
  • Rising Gamma factors mean the higher quality land is moving into bigger farms.
  • The Gamma data are confirmed by rising shares of cropland and irrigated land in vast farms.
  • Rising P/C ratios reflect a higher LSREV, and they mean it is harder for a newcomer to acquire any farm acres.

The combination means the agricultural ladder has been pulled up. Entry is nearly impossible for farmers lacking outside finance; exit and latifundiazation proceed apace. These changes accompanied and followed a 40 percent drop in farm property tax rates.  ...


A result of rising concentration is the separation of land from capital. With some exaggeration, American latifundia are now lands without buildings, but buildings cluster on smaller farms, many without enough land. This implies at least three points.

  • First, building wealth is more equally distributed than land wealth.
  • Second, the property tax would be more progressive if changed to a pure land tax, exempting buildings.
  • Third, many latifundia are not being used to their potential, while capital on some small farms is undercomplemented with land. I support the case first using national data, and then by comparing states.
It is awkward that the 1987 Census of Agriculture defines "farm size," and ranks farms, only by acres rather than value.  ...

Concentration of irrigated land

The yield per acre of most crops stays level or rises with harvested acres per farm. At the same time, sales per dollar of real estate fall somewhat. (21) The most likely reason is that the quality of harvested land rises with quantity. There is, to be sure, a trade-off between quality and quantity, but there is also a bond. Whoever can afford more can afford better. Which effect is stronger? The question must be resolved by data.  ...

Comparing different crops, high values of GR go with crops that are mostly irrigated. For example, 85 percent of tomato acres and 14 percent of silage corn are irrigated. For tomatoes, GR = .91; for silage corn, GR = .52. (26)
(26) Those who find GR index numbers too abstract will find more meaning in these raw data. For tomatoes, the top acreage bracket contains 1.1 percent of the farms, 45 percent of the harvested acres, and 52 percent of the irrigated acres in tomatoes. For silage corn, the top bracket contains 1.0 percent of the farms, 11.3 percent of the harvested acres, and 26 percent of the irrigated acres in silage corn. ...

Lack of buildings on latifundia

The 1940 Census of Agriculture was the last to separate $L from $B, overall. In 1940 the building share of real estate value ($B/[$L+B], or BSREV) was .69 in the lowest acreage bracket, .31 for all farms, and .12 for farms of 1,000 acres and over. (36)

(36) 1940 Census of Agriculture, Vol. 3:80. An earlier insightful article on the subject is D. Weeks, "Factors Affecting Selling Prices of Land in the 11th Federal Farm Loan District," Hilgardia 3, no. 17 (1929):459-542.

AELOS (1988) gives no comparable comprehensive data, but it does give two series that test the point and have the advantage of disaggregation. One is for "owner-operators" and one for "landlords with debt." For the owner-operators, ranked by acres per farm, BSREV was .63 for farms under 10 acres; .29 for all farms; and .12 for farms of 2,000 acres and over. (37) Building values are much more equally distributed among these farms than land values. ...

The inverse relationship between PTR and GR is particularly consistent and noteworthy.  ...


One may at least firmly conclude that large farm units are less improved and less peopled than small and medium-sized farms. There are two possible interpretations. One is that big farms are more efficient, getting more from less, but that is refuted by their getting less output per $L. The other is that Veblen was right, many of them are oversized stores of value, held first to park slack money and only secondly to produce food and fiber, and complement the owner's workmanship. The Florida 9 [the high LSREV states] may represent a home grown rural "third world" of large, underutilized landholdings that preempt the best land and force median farmers onto small farms on low-grade land.

The issue cannot be settled in a few words, but the implications for tax policy are the same either way. If large units are more efficient, they can bear heavier taxes. If they are less efficient, heavier PTRs will induce them to release surplus land for others, which will tend at the margins to equalize factor proportions, moving more states from the Florida toward the Wisconsin model. Read the whole article

Sounding the Revenue Potential of Land: Fifteen Lost Elements

The revenue potential of land is greater than anyone thinks. This is a progress report on a study that finds, bares, and to some extent measures elements of enhanced revenue potential by using truer and more comprehensive measures of rent and land values. It should go without saying, but often does not, that the purpose of raising more land revenues is not to fatten vexatious bureaucrats. It is

  • to replace vexatious taxes,
  • to provide and maintain and operate needed public infrastructure and services (including a reasonable national defense),
  • to pay off old public debts and avoid new ones, and
  • to fund social dividends (including existing social dividends like Social Security and public schools).
There are at least fifteen elements of land’s taxable capacity that previous researchers have either slighted, or overlooked entirely

1. Standard data sources neglect and understate real estate rents and values. a. Assessed valuations used for property taxation. b. Use of IRS data on reported rents     c. Use of “NIPA” accounts from the U.S. Department of Commerce  d. Use of Federal Reserve Board (FRB) estimates         e. Relying on the National Bureau of Economic Research (NBER)    f. Ernest Kurnow’s work under Lincoln and Moley  
2. Recent rises, and likely future rises.
3. The Land Fraction of Real Estate Value (LFREV) is much higher than standard modern sources show.

4. Many rents are best tappable by variable charges. “Taxes on rent” are much broader than the traditional property tax on real estate ex buildings.
5. Taxes on property income.
6. Substituting taxes for subsidies to promote conservation, turning "Negabucks into Megabucks" for the treasury.
7. Taxing unearned increments as current income.
8. Variant kinds of natural resources, hitherto neglected or not classed with land, show great revenue potential.
9. Variant forms of tenures to resources, omitted from standard tax rolls, show great revenue potential.
10. Rents that are now dissipated, but need not be.
1. Dissipation by open access
2. Dissipation by rent-seeking in the process of tenuring 
 11. Removal of reasons for limiting tax rates
 1. The base is not erodable (tax capitalization is not erosion)
 2. There is no taxable event, hence no Laffer Effect or Excess Burden (except as in #4, above, where the slow-down is deliberate, for conservation and congestion reasons).
 3. The base is highly concentrated, making the tax progressive in impact
 4. The tax encourages both saving and investing, leveling them upwards, the macro-economists dream.
 5. The tax base is the after-tax value of land, making the real rate much lower than the apparent rate
 6. Using the tax to obviate other taxes raises the tax base via the ATCOR Effect
 7. The tax fosters better allocation of the tax base, raising its taxable capacity.
 8. The tax hits absentee owners of land, without discouraging the inflow of capital. There is a strong local multiplier effect from taxing absentee owners. Refer to #15, below 
12. The unseen reservoir of high internal valuations and holdout prices
13. Raising taxable rents by untaxing capital and labor, production and exchange: the concept of ATCOR (All Taxes Come Out of Rents)
14. Mortgage interest as land rent?

  1. Municipal general obligation bonds.
  2. Private mortgages.
15. Multiplier effect of taxing absentee owners to spend funds locally
.Read the whole article

The Red and the Blue
Pundits since November have noted an apparent anomaly: lower-income states voted red, and higher-income states voted blue.  Within each state, lower-income counties voted red, and higher-income counties voted blue.  In California, the inland counties went red, while coastal counties, plump with wealth and income, went blue. Depressed upstate New York went red, while rich New York City went blue.

On purely economic grounds, “it’s a puzzlement.” Why do poor people support the party of big corporations and the rich? 
  • Pro-reds say it’s traditional good Americanism, character, old time religion, morality, family values, horse-sense, freedom from liberal education, and patriotism. 
  • Pro-blues say it’s primitivism, gullibility, cultural backwardness, and superstition masquerading as religion.
  • Marx, similarly frustrated in his day, explained it away by dismissing people like the red state voters as Lumpenproletariat - dummkopfs.
Before regressing into sub-adolescent cultural wars, though, there may be some economic causation here after all.  We just need better economic analysis.  Wendell Willkie wisely told us in 1940 that “A good catchword can set back analysis by fifty years.” The catchword is an economic one: INCOME.  It may have slipped by you in my opening sentence.  Willkie was too optimistic, though: his fifty years expired in 1990, with no discernable progress.

To understand the politics of New York City or San Francisco we need to begin by noting that they have about the highest residential rents and home prices in the U.S.A., along with the highest tenancy rates. It takes a high monetary income even to be poor in such places, unless you own land. Federal statisticians who publish the Consumer Price Index (CPI) delicately refrain from comparing different cities - they just compare different times, city by city. This helps them finesse tough questions about rents, and housing prices. Common observation, however, and various semi-popular publications, fill the gap.  The C.O.L., especially its rent and home value elements, is a lot higher in the big glamorous cities, so real incomes there are a lot lower than they look - unless you own land. ...
High land prices also raise the credit requirement for owning a business.  That screens out many who otherwise would have enough capital to enter or remain in business.  It forces business owners to be tenants, and look at life and politics as renters, not owners.

It is not just average incomes per capita that define the economic position of most people in a state or city.  The distribution of income and wealth makes a lot of difference.  But wait again: IRS data, and other data derived from IRS sources, vastly misstate the concentration of real income because they omit the imputed income of owner-occupied housing.  Thus, a salary-earner paying high rent in the Gold Coast of Chicago has the same reported income as one on the same salary on the same Gold Coast who owns his own million dollar house or coop or condo, and pays no rent. More: the renter’s income is actually reported as higher, because the owner gets to deduct the costs of ownership, interest and property taxes.  It’s the renters who turn Chicago blue -- along with most big cities.  ...

The difference between tenants and owners is stark and obvious.  There are also differences among owners.  In poorer cities, the “skew” of home values is much less than in richer cities.  “Skew” means inequality, and is measured in many ways.  An easy way is the ratio of the mean home value to the median value: the higher the ratio, the greater the skew.  In southern California, as we move from the red interior to the blue coast, the skew rises a lot, meaning the top values rise faster than the other values.  Thus, in the blue counties the homeowners are less equal to each other. Here, too, there is a greater gap between tenants and homeowners; and there are more tenants.

The blue counties report higher incomes per person than the red inland counties.  You might think this would compensate for their higher home values, but you’d be wrong.  Moving from red to blue, home values rise faster than incomes.  The National Association of Realtors (NAR) and its state affiliates report “Affordability Indexes” for different cities.  These indexes show what fraction of the residents can afford to buy the median-priced home.  The higher the median income, the lower the Affordability Index. Counter-intuitive?  Again, that is because home values rise faster than incomes.  The blue counties are those with lower affordability indexes.

The same pattern prevails nationwide. Median income ranges from a low of $36.3K in El Paso to a high of $91.5K in Washington, D.C., a ratio of 2.5/1.  Median home values range from a low of $87K in Buffalo/Niagara Falls to a high of $531K in the San Francisco Bay area, a ratio of 6.1/1.  This is a general pattern: incomes vary a little among places; home prices vary a lot.  Blue states and blue counties are generally those where land is out of reach of a high fraction of the people.

What that means for social psychology and voting patterns I leave to you. One thing is clear: “income” is a catchword that has obscured analysis for Willkie’s fifty years, and more.  To solve the red-blue voting puzzle, we must study land values.  Read the whole article

The Taxable Capacity of Land

  The question I am assigned is whether the taxable capacity of land without buildings is up to the job of financing cities, counties, and schools. Will the revenue be enough? The answer is "yes."

 The universal state and local revenue problem today is whether we must cap tax rates to avoid driving business away. It is exemplified by Governor Pete Wilson of the suffering State of California. He keeps repeating we must make a hard choice: cut taxes and public services, or drive out business and jobs. (When a public figure gives you two choices you know they're both bad, and he wants one of them.)

 The unique, remarkable quality of a property tax based on land ex buildings is that you may raise the rate with no fear of driving away business, construction, people, jobs, or capital! You certainly will not drive away the land. However high the tax rate, not one square foot of it will put on a track shoe and hop out of town. The only bad thing to say about this tax's incentive effects is that it stimulates revitalization, and makes jobs. If some people think that is bad, maybe this attitude is the problem. ...

 Most California land, on the other hand, is now taxed at well below the allowable max of 1%. Speculators may sit on it at little tax cost, however many highways and water and sewer lines run to and past it, however many policemen are guarding it from trespass. Little wonder that California enterprise, once so dynamic, flexible, and vital, is giving way to stasis and decay. We used to lead the nation in making jobs; now in losing them. We used to lead in school quality; now in jail population.

When you tax land, the market moves each owner to join it with labor and capital as a vehicle for enterprise or shelter.

"Hold on again," I have heard, "how much revenue can land yield by itself?" It is my job to address that. I assure you it can yield more than local governments need. I have already pointed out you can raise the rate to any level without fear of driving away jobs, capital, people, or building. That is a remarkable quality in a tax, especially one as progressive as the land tax. I will also support the point in several other ways.

 The taxable capacity of land is camouflaged in our times by a consistent modern tendency to underassess it, relative to buildings. There are several studies in point. The most general one is the quinquennial Report of the U.S. Census of Governments. It actually understates the tendency a lot, by omitting the class of land most underassessed, that is, raw acreage in and near cities.

I have here data ... I worked up in Milwaukee from 1969 data indicating that, if land were assessed correctly, the land fraction of the real estate tax base would be over twice what the City Assessor reported. His fraction was 31%; it should have been 70%.  ...

How does one come to so startling a finding? Wisconsin is not a backward state. It prides itself on the high quality of its public administration. What I did was study sites on the eve of demolition. When you buy an old junker to tear down and replace with a new building, you (the market) are obviously recognizing that the building has no residual value. All the value is then in the land. However, in Milwaukee in 1969 the Assessor was saying the building was worth about three times as much as the land, just before tear-down. That is a good way to measure to what extent land is underassessed.

 Try that in Manhattan. When the visitor first gapes at its skyline from afar, it looks like one big modern high-rise. If you poke around on foot much, though, you soon realize those are the exception. Most of the lots are covered with obsolete junk, some of it tumbledown, commanding rents mainly for their location value.

 Check the Empire State Building. Old as it is, it is still nearly the tallest building in the world. As to its site, it is in a so-so reach of 5th Avenue (34th Street), many blocks from the 100% location (57th Street, I would guess). Even so, when the site and the building sold in separate transactions a few years ago, the site represented 1/3 of the total value. What does that say about the land fraction on neighboring parcels, covered only with the remains of ordinary old structures? What does that say about the land fraction nearer the 100% location? ... 

 "How about corporate stock?", I hear. "Should we exempt corporate wealth from the property tax?" Actually, almost all jurisdictions already exempt stock and all other "intangible" property. Not to worry, however, you tax corporate assets. When you rank property owners by value of holdings, the top ten on most tax rolls are all corporations. None of their multi-national profit-shifting through layered ownership of foreign subs, and creative transfer pricing, can hide their taxable property on your assessor's maps. This makes sense anyway. Why should you think you can tax a corporation for its business in Malaysia? What concerns you is its property in your town. ...

 "Hold on once more," I hear, "not so fast, how about the mansions of rich people?" Another fair question: how, indeed, can you justify exempting them from taxation? The answer may astonish you. Here are some data from British Columbia that speak to the point. They are from the area around Vancouver (The "Lower Mainland") and the southern part of Vancouver Island, around Victoria, where over half the people in the province live. B.C. practices high quality professional assessment; data from its rolls are quite reliable, as such things go. ...

 Cities and districts around Vancouver and Victoria are ranked, in Table 1, according to the land value per property (single-family residences). These range from nearly $700,000 each in the "University Endowment Lands" district (very posh), to around $40,000 each in the "Victoria Rural" district (more modest). The last column, LSREV (Land Share of Real Estate Value), shows the land value (L) as a share of the total value (B+L).

These shares range from a high of 80% on the University Endowment Lands (UEL) down to 38% in Colwood (the lowest), and 39% in Victoria Rural (next to lowest). In between, the numbers follow the trend closely. The dearer the land parcels, the higher is the "land fraction" (the fraction of total real estate value that is land value). From such data, one might formulate a rule along the lines that "the lot value increases with the square of the house value." It is hard to be so precise, and not necessary. The relevant rule we need here is just that people's house values are more alike than their lot values. It is lot value, more than house value, that divides the rich from the poor.

 The average house (ex land) in the posh UEL jurisdiction is worth 2.8 times the average in the Victoria Rural jurisdiction ($173.1/$61.9). The average land parcel (ex building) in the UEL is worth 17.5 times the average in the Victoria Rural jurisdiction ($692.5/$39.6).

 Now do us both a favor, please. Pause and savor that comparison. Let it linger, as though you were testing a slow sip of wine from Fredonia's famous grapes. Roll it on your tongue, mull sensually over its aroma and bouquet, and, getting back to business, mull cerebrally over its full import. The house that shelters the very rich family is worth 2.8 times the house of the modest family; but the land under the house of the very rich is worth 17.5 times the land of the modest. Seventeen and one half times as much! Again, it is lot value, more than building value, that divides the rich from the poor. Seldom will you find an economic rule more strongly supported by data. It's just a matter of presenting the data so as to test and bring out the rule.

An American counterpart of Vancouver's "University Endowment Lands" is Beverly Hills, California, where land value composes some 80% of residential values, and the mean parcel is worth something like a million dollars. Beverly Hills, with its great wealth and mansions, is known as "Tear-down City." Every year many a grand old palace that once sheltered some renowned matinee idol, and rang to scandalous parties, is torn down to salvage its site for the next, grander one. In a land boom, such as crested in 1989, half the city goes to the brink of demolition and replacement.

 What do those data tell us? The rich as a rule do not live next to the poor. Rather, they cluster in neighborhoods with much higher lot values. The poor seek shelter first, and go where it is affordable. The rich put a high premium on location, neighborhood, views, and grounds, resulting in higher land fractions in their real estate. Mansions are visible evidences of wealth, impressing viewers powerfully; land values are invisible. The perceptual bias is to underrate the invisible, if you are not regularly in the real estate market. In the numbers, however, land and buildings are equally visible, and their message is clear. It is land value more than house value that divides the rich from the poor. Ergo, a tax shift from buildings to land is a shift from the poor to the rich, even though the houses of the rich are exempted. It makes the property tax more progressive. ...

 Making the property tax more progressive is not just equitable, it raises its revenue capacity. That is because visible damage to the poor and marginal puts a cap on any tax. You can't squeeze blood out of a turnip, and if you try you'll look like the Sheriff of Nottingham. A land tax won't drive the poor from their humble huts, because it exempts the huts, and the sites have low tax valuations. It may tax a few off valuable land, if their poor huts are there and they own the land. However, if they own such land, are they really poor?

 They may be "land-poor:" a few folks always are. They have non-cash assets, but are illiquid. "Illiquid" may be just a euphemism for "holding out for more" -- there is always a market at a price. Even so their plight, genuine or affected, traditionally evokes sympathy and support. We must address it.

 California, although backward in many ways, has addressed it effectively. In our special improvement districts (SIDs), State law allows the SID to contract with the landowner as follows. You don't have to pay your annual charge in cash. If you choose not to, we take an equity in your property, charging a modest rate of interest. Our equity accumulates over time. When you die, we sell the property and take our share; your estate gets the rest. Should our equity reach 100% during your lifetime, you stay there for the duration, tax free.

 Objectively, it looks like a good deal for the taxpayer. They can't come out behind, even if they die soon; if they live long, they come out ahead. The instructive result is that very few people take this apparently advantageous option. UCLA's Donald Shoup has published several works on the program. One way or another, they manage to pay on time. Perhaps it attracts the attention of potential heirs, in a compelling way, but somehow the cash comes forth. While intending only to relieve distress, the program seems to have called a great bluff. The lachrymose plea of the cash-poor widow is unanswerable in debate, without appearing callous, doctrinaire, and jackbooted. Meantime wealthy interests, thoroughly undistressed, hide behind the widow's skirt and get their way. ... 

Those getting the cold shower, meantime, may resist it. In California, the land of extremes, we got Howard Jarvis and Prop. 13. This Constitutional Amendment capped the property tax rate at 1%, and virtually froze assessed values until land sold. Then the boom really went wild. I myself, after campaigning hard against Jarvis, unexpectedly made $200,000 in a few months after it passed. Buyers were chasing me around the block, just to buy a scrap of land I happened to have in the right place at the right time. It was blind luck, but the money was as good as though I had earned it honestly: better, in fact, because 60% of the gain was not even reportable as taxable income. It was a once-in-a-lifetime experience, but buyers and sellers came to regard it as normal, and only fair. They saw regular annual increments as a divine right of property. For a few mad years, they were.

 It was the lack of a tax stabilizer that took the cap off land prices. When my lot rose to $240,000, it was still assessed at $10,000, and capped there by constitutional law! Taxes were 1% of $10,000 - that's right, $100/year, 1/24 of 1% of the market value. Was I in a strong bargaining position? You bet, and I loved it, just as you might. Now we are paying the price, or beginning to, as our public services collapse and our criminals outgun our police. This year they are cutting faculty salaries (that's me) 5%, and raising college tuition (that's my three children) 100%. I'll pay all right. All tax rates other than property are headed north; land prices south. Our once-vibrant economy is dying; our unemployment rate leads the nation. Our largest city was torched last year by the frustrated unemployed. Our once-leading schools trail the nation; our murder rate leads it. Those are the economic consequences of Howard Jarvis. Like Tokyo and London and Faust, we signed with Mephistopheles. He showed us a grand time, but now his bill is due. To paraphrase Kipling, "Be warned of our lot, which I dread you may not, and learn about Jarvis from me."

 Another attractive feature of land taxation is its interesting positive effect on the economic base of a city. It strengthens it by its tendency to hit absentee owners harder than resident owners. The land fraction in real estate is generally highest in the CBD of any city, so that is a favorite place for absentees to buy and hold. They like the steady income, and the "trophy" quality. The surplus in real estate is what attracts outside buyers, and land is what yields the surplus. About 2/3 of downtown Los Angeles is owned by non-resident aliens, for example. In a more workaday city, Milwaukee, the absentee owners consist of former residents, or their heirs, who grew too rich to abide the harsh winters.  ...

 When you observe cities much, the positive neighborhood effects of replacing old buildings with new are irresistible and contagious, raising land prices all around. The converse is also true: the negative neighborhood effects of letting old junkers stand without replacement are depressive. Thus, when you take the tax off new buildings, and put it on the land under old tumbledowns, you kick off a general process of revitalization that turns gloom into hope into optimism: optimism that boosts land prices and the land tax base.

 There are three kinds of slums.

Type I slums develop on land in the van of downtown expansion, on land held for a future higher use. The speculators are milking the old structures for any residual value. They don't much mind when the tenants leave, and spare them the trouble of an eviction when they want to sell or rebuild. That's what they're in it for: the current use is incidental.
Type III slums (listed here out of numerical order) develop on land that is no good, and may never be, like floodplains and earthquake faults. They also develop around abbatoirs, dumps, stockyards, etc., although these are subject to change. In either case, people are driven there by the inadequate development of good land.
Type II slums, our focus here, are the most extensive. They occur on good or superior residential land originally developed over fifty or a hundred years ago. It may once have housed the upper crust, but as the buildings aged without replacement they "filtered down," and down, and down, until their occupants began radiating negative neighborhood effects. There comes a tipping point where the neighborhood self- estructs cumulatively, because no one wants to build new in a decayed, menacing neighborhood. The renewal value of land is lost, the tax base is lost, nothing remains but social and public costs: a municipal disaster area. The city that fails to renew itself on time is steering itself to this fate, like Camden, the Bronx, East St. Louis, Benton Harbor, MI, and Detroit.

 That's the bad news. How do you turn it around? When you drop buildings from the property tax base, you change the arithmetic of incentives, as we have discussed. Parachuting into the middle of a slum is still hopeless, as before. Change will come first to the fringes of the Type II slum, where it merges into healthy neighborhoods. New development likes to anchor onto healthy neighborhoods. Richard Hurd, father of urban studies in America, taught us in 1902 that land values are marked by continuity in space. It's still so. Fashions and technology change, but principles last. Hope survives at the edge of the slum; land there retains some renewal value. There is where you'll first see change, because there is where the forces are evenly balanced. Tip the forces for renewal, and there is where it begins.

 Once it begins, it proceeds incrementally through the Type II slum. When it's through, your oldest neighborhood has become your newest, the cutting edge of progress, the showplace of the town. That is how it has got to work; that is how it will work when you exempt buildings and tax only land. When it is through, you have a high tax base where now you have nothing but fire and police calls.

I once wrote a long chapter on this subject, "The Adequacy of Land as a Tax Base" (Gaffney, 1970). It came out of two years of research, and is too long even to summarize now. I am delivering it to Pat Salkin, however, and hope she may add it to the record of this conference. I also attach a short bibliography of articles that expand on topics covered above, for whoever is moved to study more on this fascinating subject. I hope you think it as important as I do. Please pick up this ball and run with it. Nobody said it was going to be easy. There are some bone-crushing line-backers out there, like Greed, Ignorance, Myopia, and Inertia. So much the more credit to you when you cross the line: your fans will love you for a touchdown. They really need a lift; they've waited so long! Read the whole article

The Taxable Surplus of Land: Measuring, Guarding and Gathering It
1. Common Property in Land is Compatible with the Market Economy.
2. The Net Product of Land is the Taxable Surplus
A. To socialize the taxable surplus, land rent, effectively, you must define and identify it carefully, and structure your taxes to home in on it.
B. Taxable surplus is also what you can tax without driving land into the wrong use.
C. To tax rent we must be sure there is rent to tax, and we must adopt public policies to husband and maximize it, and avoid policies that lower and dissipate it.
i. Avoid "perverse subsidies."
ii. Avoid letting lessees of public land conceal their revenues.
iii. Avoid letting lessees or taxpayers pad their costs to understate their net revenues.
iv. Avoid dissipating rent by allowing open access to resources like fisheries,
v. Avoid trying to distribute rents to consumers by capping prices below the market.
D. Raising output by removing tax bias
E. Maximizing public revenue.
F. Sustaining the tax base
3. Taxing the Net Product of Land Permits Untaxing Labor
4. Taxing the Net Product of Land Permits Untaxing Capital
5. Taxing the Net Product of Land Provides Ample Public Revenues: a Master Solution to Many Problems
A. Public revenues will support the ruble.
B. Your public credit will, of course, recover to AAA rating when lenders see that there is a strong flow of revenue to pay public debts.
C. Never again need you bend to any "advice" or commands from alien lenders, nor endure patronizing, humiliating homilies from alien bankers, nor beg any foreign power for aid.
D. If you again feel the need (as I hope you will not) to rebuild your military, you will of course require strong revenues.
E. Strong national revenues are required to unite Russia, and keep it one nation.
1. Common Property in Land is Compatible with the Market Economy.
You can enjoy the benefits of a market economy without sacrificing your common rights to the land of Russia. There is no need to make a hard choice between the two. One of the great fallacies that western economists and bankers are foisting on you is that you have to give up one to enjoy the other. These counselors work through lending and granting agencies that seduce you with loans and grants to learn and accept their ideology, which they variously call Neo-Classical Economics, or "monetarism," or "liberalization." It is glitter to distract you and pave the way for aliens to acquire and control your resources. 

To keep land common while shifting to a market economy, you simply use the tax system. Taxation is the form that common property takes in a monetary, market-oriented economy. To tax is to socialize. It's then just a simple question of what you will socialize through taxation, and how; but in the answers lie success or failure.

Not only can you have both common land and free markets, you can't have one without the other. They go together, like love and marriage. You need market prices to help identify land's taxable surplus, which is the net product of land after deducting the human costs of using it. At the same time, you must support government from land revenues to have a truly free market, because otherwise you will raise taxes from production, trade, and capital formation, interfering with free markets. If you learn this second point, and act on it, you will have a much freer market than any of the OECD nations that now presume to instruct you, and that are campaigning vigorously to make all nations in the world "harmonize" their taxes to conform with their own abysmal systems.

The very people who gave us the term laissez-faire -- the slogan at the core of a free market economy -- made communizing land rents a central part of their program. These were the French economistes of the 18th Century, sometimes called "Physiocrats," who were the tutors of Adam Smith, and who inspired land reforms throughout Europe. The best-known of them were François Quesnay and A.R. Jacques Turgot, who championed land taxation. They accurately called it the "co-proprietorship of land by the state."
Since their time we have learned to measure land values, and we have broadened the meaning of "land" to comprise all natural resources. Agrarians will be relieved, and may be surprised, that farmland ranks well down the list in terms of total market value. Thus, a land tax is not primarily a tax on farms; only the very best soils in the best locations yield much taxable surplus.  ...    Read the entire article

Unearned increments and reality in California's recall election

California homeowners are wallowing in unearned increments beyond the dreams of avarice, while its governments are courting bankruptcy. Warren Buffett dared point this out, and overnight changed from the Oracle of Omaha into the Numbskull of Nebraska because he does not understand the "reality of California politics," the oxymoron du jour.

Most candidates for Governor fled like startled deer. Buffett's sponsor, well-tailored Mr. Muscles, recalled meeting a tearful widow who said she would have been taxed out of her home were it not for Prop 13. Poor thing, her home had risen in value. No one asked her name, or whether she knew what she was talking about, or had her claims audited - being a tearful widow "on a fixed income" insulates one from reality checks. The press chimed in with pix of poster oldsters, gazing from their multi-million dollar perches over the blue Pacific, fretting about Buffett's solecism and its possible effect on them, never mind anyone else.

Fact is, unearned increments ARE income, at the time they accrue. Illiquid? They are better than cash income because you can turn them into cash by borrowing on them, and pay no income tax on the cash. If you have trouble with that, the tax man himself will arrange it for you by placing a tax lien on your appreciated home, rather than foreclose and evict you. This helps explain why we never actually see one of these evicted widows suffering from unearned increments -- they are maudlin figments for mythmakers. The evictees we do see are renters who couldn't pay, and had no equity to mortgage. Who cries for them? ...
Governor Gray Davis, supposedly fighting to close a deficit, chimed in endorsing Prop 13, citing the mythical widow again to explain why non-residential property, about 2/3 of the tax base, should enjoy low rates. Faced with a negative poll, he backed right down from his "land tax on wheels," the higher vehicle registration fee.
  • No one has said a word about a severance tax on oil and gas, although California is the only major producing state without one. 
  • No one has crusaded for a severance tax on water withdrawals, although it would solve both our revenue and water crises in one stroke.
  • No one has said word one about taxing the taboo lands used for golfing, timber, or farming. ... Read the whole article

Who Owns Southern California?

1. HOLDINGS BY ALIENS  ... Non-resident aliens own about 75% of the "major" buildings in the L.A. CBD west of Broadway ...
2. AMERICANS FROM OTHER STATES ... A second kind of holder is the out-of-state American, individual or corporate.
3. CALIFORNIANS Many of our largest landholders also live in California. This is partly because the lands are here, but moreso because certain places in California are good places to live. One of the advantages of receiving property as opposed to labor income is it lets one choose his residence. California ranks after New York in the number of rich Americans (using Forbes' list) who reside here.

Also included here are California-based corporations. A corporation's "base" refers simply to the site of its headquarters: its shareholders are scattered around the world, and the major shareholders, who exercise control, are effectively screened behind layers of trusts and financial institutions, so they are impossible to identify with certainty.

Institutions acquire land for their operations and then it tends to stick to them for various reasons. It is tax free, for one, so long as they retain it (and do not use it commercially). They are not subject to corporate raids. Thus there is no mechanism whereby the current opportunity cost of land is felt by management. It never appears in their budgets; they never need compete for or justify it. College Boards are not accountable to any public body, a precedent set by Marshall's U.S. Supreme Court in Dartmouth College v. Woodward, 1819.

In Memoriam, Stan Sapiro

Geoism, Recession and Control of Monopolies
As for the coming "boom," I simply repeat my observation that there is no U.S. economy; there are only regional economies competing with one another as well as with other nations. We have the beginnings of speculative booms in some places, stability in others, and continuing recessions in others. People who cannot sell their houses because they owe more on them than they are worth cannot take their services elsewhere to seek employment. So much for the mobility of the labour force. This is one of the unfortunatesides of the American dream of home ownership; when a lease expires, one simply does not renew.

Only around 25-30% of households own their own homes. By good fortune, I just read something that helps resolve the difficulty. It seems that a great deal of anti-trust legislation from the Progressive Era had been aimed at monopoly in the flicks, which had started with Thomas A. Edison, who was as much a patent-litigation bully as he was a pure inventor. Much of this legislation became unravelled under President - guess who? - Ronald Reagan, spawn of the "entertainment" industry, and political voice for same. Vertical integration and media mergers and monopolization then ran wild. Disney under Eisner, of course, has played a role in this. Disney as real estate developer throws its heavy weight around brutally.

This question arose in connection with Georgist taxation, and what it would do about Mr. Eisner, and overpaid CEOs like him. The answer, I think, is that "Georgism" involves more than taxation. It also involves promoting competitive markets and smiting or breaking up mergers, monopolies, and restraints of trade, by various means. It was, after all, part of first the Populist, and later the Progressive Movements.

"Georgism" may be construed narrowly as a limited fiscal reform. Some of its votaries present it that way. As such, it is rightly suspected of being a bit cranky, and too limited. I see it as a broad front program to limit centralized monopoly control of industry, and promote free entry and free competition with proper regard for both consumers and workers.
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Wealth and Want
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