Wealth and Want
... because democracy alone is not enough to produce widely shared prosperity.
Home Essential Documents Themes All Documents Authors Glossary Links Contact Us


Google provides these definitions for externality:
  • An effect of one economic agent's actions on another, such that one agent's decisions make another better or worse off by changing their utility or cost. Beneficial effects are positive externalities; harmful ones are negative externalities. (source: www-personal.umich.edu/~alandear/glossary/e.html)
  • In economics, a cost or benefit attributable to an economic activity that is not reflected in the price of the goods or services being produced. Thus damage to the environment may not be counted as a cost (or environmental protection as a benefit) in production. It is the aim of the POLLUTER PAYS PRINCIPLE to require polluters to meet the cost of avoiding pollution or of remedying its effects, so internalizing the externalities. (source: www.coalitionforcleanair.org/air-pollution-glossary.html)

Who should bear the costs of negative externalities? Should it be a matter of "luck" (perhaps offset by charity or philanthropy) or a matter of justice? Part of our poverty problem is that the negative externalities of others' windfalls fall disproportionately on the poor. That might sound acceptable in some countries, but it certainly doesn't fit in a country which holds equal liberty as a key tenet.

Should the benefits of positive externalities be concentrated in the portfolios of those who own our natural resources, including the best urban land, or should those benefits be collected as our common treasure?

How will other countries regard us, if we shift the negative externalities associated with our energy use off onto other countries. Are we reasonable to wonder why they don't like us?

Nic Tideman:   The Case for Taxing Land

I.  Taxing Land as Ethics and Efficiency
II.  What is Land?
III.  The simple efficiency argument for taxing land
IV.  Taxing Land is Better Than Neutral
V.  Measuring the Economic Gains from Shifting Taxes to Land
VI. The Ethical Case for Taxing Land
VII. Answer to Arguments against Taxing Land

There is a case for taxing land based on ethical principles and a case for taxing land based on efficiency principles.  As a matter of logic, these two cases are separate.  Ethical conclusions follow from ethical premises and efficiency conclusions from efficiency principles.  However, it is natural for human minds to conflate the two cases.  It is easier to believe that something is good if one knows that it is efficient, and it is easier to see that something is efficient if one believes that it is good.  Therefore it is important for a discussion of land taxation to address both question of efficiency and questions of ethics.

This monograph will first address the efficiency case for taxing land, because that is the less controversial case.  The efficiency case for taxing land has two main parts.  The first and more traditional part is that taxing land permits the reduction of other taxes.  This improves efficiency because it reduces the economic distortions that cause people to work less and save less.  Because land is fixed in supply, there is no reduction in economic efficiency from taxing it.

The second and less customary part of the efficiency argument for taxing land is that, apart from the opportunity it offers to reduce harmful taxes, taxing land actually improves economic efficiency, in at least three ways. 
  • First, compensation for local externalities associated with land use can be incorporated into a tax on land. 
  • Second, when lending markets are imperfect, taxing land improves the relative bidding power of persons who face high interest rates.  This shifts land into the hands of persons who get greater returns from it.
  • Third, taxing land reduces the profit from land speculation, there­by reducing the amount of land speculation, which increases the effective supply of land.
To estimate the magnitudes of the impacts that additional taxes on land would have on an economy, one must have a model of the economy.  I report on estimates of the magnitudes of impacts on the U.S. economy of shifting taxes to land, based on a mathematical model that is outlined in the Appendix.

The ethical case for taxing land is based on two ethical premises:  ...

The ethical case for taxing land ends with a discussion of the reasons why recognition of the equal rights of all to land may be essential for world peace.

After developing the efficiency argument and the ethical argument for taxing land, I consider a variety of counter-arguments that have been offered against taxing land.  For a given level of other taxes, a rise in the rate at which land is taxed causes a fall in the selling price of land.  It is sometimes argued that only modest taxes on land are therefore feasible, because as the rate of taxation on land increases and the selling price of land falls, market transactions become increasingly less reliable as indicators of the value of land.   ...

Another basis on which it is argued that greatly increased taxes on land are infeasible is that if land values were to fall precipitously, the financial system would collapse.   ...

Apart from questions of feasibility, it is sometimes argued that erosion of land values from taxing land would harm economic efficiency, because it would reduce opportunities for entrepreneurs to use land as collateral for loans to finance their ideas.  ...
Another ethical argument that is made against taxing land is that the return to unusual ability is “rent” just as the return to land is rent.  ...

But before developing any of these arguments, I must discuss what land is. ...

Taxing Land is Better Than Neutral

The analysis above explained how a tax on land can be ‘neutral’, that is, how such a tax can have no excess burden.  In fact, taxing land is better than neutral; it improves economic efficiency compared to the no-tax situation.  This section explains how.

First, a land tax can be used to take account of positive and negative externalities associated with land use.  The typical example of a negative externality is pollution.  If labor and capital were perfectly mobile, then the effect of pollution on near-by locations would be reflected entirely in land values.  Thus one might say that a polluter ‘uses’ surrounding land and should pay for that use in the form of a ‘land tax’ equal to the reduction in the rental value of land that results from his activities.  Such a land tax would not only raise govern­ment revenue, but would also improve efficiency by ensuring that people would engage in activities that pro­duced pollution only when the benefits of those activities exceeded the costs.

Because labor and capital are not perfectly mobile, pollution affects not only land values, but also the value of structures and the net well-being that people experience from the opportunity to continue to live in accustomed places.  Efficient management of pollution would charge polluters for these costs as well.

When there is traffic congestion on city streets or on highways, bridges, or tunnels, one might say that there is a problem caused by people not being charged adequately for the use of particularly valuable space.  If there is a congestion charge (land tax) that reflects the extent to which any one user of streets and highways imposes costs on others users in the form of increased travel times, then that congestion charge improves efficiency while also raising government revenue.

What applies to negative externalities applies also to positive externalities, although now some extra steps in the analysis are needed.  If there are private activities that raise the rental value of surrounding land, such as the provision of a car park in a city centre, then to motivate private users of land to undertake these activities at efficient levels, one must compensate them for the value of the positive externalities they generate.  Again, if labour and capital were perfectly mobile, these externalities would be reflected entirely in changes (this time, positive changes) in land values.

With compensation for the externalities now generating an outflow from the public treasury rather than an inflow, it is not immediately clear that the government can afford to provide efficient incentives.  However, if the tax regime is one in which the government collects all of the rental value of land in taxes, then efficient incentives for activities with positive externalities that are reflected in land values will be self-financing.  What is spent in rewarding activities with positive externalities will be recaptured from taxes on the land that rises in value.  In fact, there is bound to be a net surplus, because the improved coordination of land uses that would be induced by the rebates for positive externalities would make land worth more in the aggregate with the rebates than without them.

If the government collects only a fraction of the rental value of land, then rewards for positive externalities would not be self-financing, and one would need to ask whether this particular use of scarce government funds was more important than other potential uses.  Still, it would be possible to have ‘betterment districts’ that would levy special-purpose taxes on the land that benefited from activities like private parking garages.  With such special-purpose taxes there is no competition for scarce public funds.  And while the system of rewards for positive externalities would not generate a net surplus for the Treasury as it would under a system of full taxation of the rental value of land, it would generate a net improve­ment in the efficiency of the economy.

As with negative externalities, the fact that labor and capital are not perfectly mobile means that not all of the effects of activities with positive externalities are reflected in land values.   ... Read the whole article

Nic Tideman: The Case for Site Value Rating
The Social Justice of Site Value Rating
The Efficiency of Site Value Rating
How Valuations would be Made

Both for reasons of social justice and for reasons of economic efficiency, site value rating deserves a continued place in the programme of the Liberal Party.

The case for site value rating in terms of social justice is founded on two understandings: first, that the value of land in the absence of economic development is the common heritage of humanity, and second, that increases in the rental value of land arising from economic development and government expenditures should be collected by governments to finance those activities. What is meant by "land" is the unimproved value of sites and the value of extractable natural resources such as North Sea oil.

While there may someday be institutions capable of implementing a recognition of land as the heritage of all humanity on a worldwide basis, in the absence of such institutions each nation should implement a recognition that land within its boundaries is the common heritage of its citizens. This is accomplished not by making the nation a gigantic Common or by instituting government management of all land, but rather by requiring all persons and corporations that are granted the use of land to pay a fee or tax equal to what the rental value of the land they control would be if it were in an unimproved condition.

The case for site value rating in terms of economic efficiency is founded on the fact that a tax on resources that are not produced by human effort is one of the few sources of government revenue that does not reduce incentives for people to be productive. Two other revenue sources that have this virtue are taxes on other government-granted privileges such as exclusive use of radio frequencies and taxes on activities with harmful consequences, such as polluting the air. An economy will be more efficient if revenue sources that do not diminish productivity are employed to the greatest possible extent before any use is made of taxes that impede productivity.

What makes a tax efficient is that the amount of tax that is due cannot be reduced by reducing productive activities. When incomes are taxed, people can reduce the amount of taxes owed by working less. They do so, and the productivity of the economy falls. When houses are taxed, people can reduce the amount of taxes owed by building fewer house and smaller houses. They do so, and the housing shortage worsens. But when the unimproved value of land is taxed, there is no resulting diminution in the quantity of land. Thus taxes can be levied on land without diminishing the productivity of an economy. And shifting taxes from other, destructive bases to land will improve the productivity of an economy.

Subsequent sections explain in more detail these social justice and efficiency arguments for site value rating, describe procedures for implementing such a tax system, and explain why a variety of potential objections are without merit. ... Read the whole article

Nic Tideman: Basic Tenets of the Incentive Taxation Philosophy
Creating a More Productive Economy
The ideas we espouse are attractive not only for their embodiment of principles of justice, but also because they can be expected to lead to a more productive economy.

Economists agree that the imposition of taxes generally retards an economy. The reason for this is that with almost all taxes, it is possible for a tax payer to reduce total tax collections by doing less of whatever is taxed--work less, spend less, save less, etc. This means that taxes generate an incentive to be less productive.

With fees for the use of government-assigned opportunities, on the other hand, the only thing that a person can do to reduce the amount of money that he or she pays is to use fewer of these opportunities. But then the opportunities can be used by someone else, who will pay the fees, and total public revenue will be unchanged. There is no possibility reducing total government revenue by being less productive. Thus these fees can be collected without dragging down the economy in the way that existing taxes do.

Our ideas provide for the natural financing of any worthwhile public expenditure that makes a particular area more attractive or productive--parks, freeways, subways, sewer systems, etc. These public expenditures raise the rental value of land in their vicinity, and thereby raise the fees that can be collected for using the land. If the activity is worthwhile, the increase in rental values will be sufficient to pay for the activity.

Another way in which our ideas promote a more efficient economy is by eliminating the opportunity grow rich by having government promote one's own interest at the expense of others. Such distortions of the political process can occur either by persuading a government agency to spend money in a way that raises the value of land that one owns while others foot the bill, or by persuading a government agency to prohibit others from doing what one is permitted to do. In both kinds of cases, the person who promotes his or her own interest has no reason to take account of the costs that are thereby imposed on others, and typically these costs to others are greater than the self-seeking benefits. This makes the economy less productive.

Furthermore, the very possibility of growing rich by manipulating government action draws talented people into the effort to manipulate government decisions, when they could be employed doing something useful.   ...  Read the whole article

Nic Tideman:  Improving Efficiency and Preventing Exploitation in Taxing and Spending Decisions

Under the conservative or homesteading libertarian versions of classical liberalism, the possessor of land might say, "This is my land. I didn't ask for these public goods. You have no right to tax me to pay for them." Under geoliberalism, on the other hand, the community can reply, "You have as much right to the use of land and other natural opportunities as anyone else. If you want to exercise your rights in this community, these are the taxes you must pay. If you don't like it, claim your share of natural opportunities somewhere else."

If people are perfectly mobile and have an unlimited range of communities to choose among, then they cannot be exploited and need not tolerate inefficiency. They will move. Competing communities will find that the utility-maximizing public sector equilibrium involves providing all local public goods with benefits greater than costs, financing them by a combination of fees equal to marginal costs and taxes on the land that benefits from differential access to the local public goods. There will be no taxes on labor or capital except to internalize externalities.

If tastes vary so much that a community cannot be filled with people with the same taste for local public goods, then it will not be possible to finance all worthwhile local public goods by the increase in rent that they generate.

The community will either have to leave some worthwhile local public goods unprovided, or finance them from some other source. But in either case the residents are treated fairly if they are free to move elsewhere and choose not to do so....  Read the whole article

Fred Foldvary: Geo-Rent: A Plea to Public Economists
A similar sort of blinkered compartmentalization goes for textbook discussions of externalities. The mainstream literature rarely highlights the point that, whether by geo-rent taxation or by private contract, the tapping of geo-rent promotes internalization of externalities. If the government depends on geo-rent, it has a strong incentive to increase geo-rents, or to ameliorate externalities. Public revenue from site values thus is an important way to internalize territorial costs and benefits. The failure to tap geo-rent exacerbates externalities. Private communities do base their finances on site rentals, and we are less inclined to identify the positives and negatives within a private community as “externalities.” Territorial amenities have been internalized within property relations and pecuniary effects. Read the entire article

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.   
Conventional price theory has been accused of mocking physics because it uses some elementary calculus, but if so it is a poor imitation: it deals with an imaginary world abstracted not just from friction but from space and time themselves.  Space is relegated to one subdiscipline (location theory) and time to another (finance), so regular price theorists can spin their webs in purest abstraction, undistracted by these details.   

Most price theory is spaceless.  Even location theory, at least the most common kind, conventionally treats cities as Euclidean points: the math is simpler that way.  Newton could get away with it explaining planetary motion; students of urban sprawl can not.   

Economists are also ill-equipped to deal with ecology.  Economists' "externalities" pour into a biosphere of interdependencies at least as complex as what economists purport to understand.  Economists are too disposed to underrate the sensitivity, passion and numbers of Nature's votaries, and the real economic value of the philosophical values they celebrate.  Fisheries economists are a notable exception, although they probably impose more economics on biology than vice versa.  But most economists treat "eco-freaks" as noisy nuisances.  In the absence of a real ecologist I will presume to take their part. ...


The frustrated economist, unable to tax runoff, still has a bag of tricks.  He looks for surrogates to tax, something in a sack or bottle that moves through a market: Aha! pesticides, fertilizers, salt, they'll do nicely to tax.  Thus we will "internalize the externalities" and have "proper pricing of inputs" to create incentives for correct "trade-offs" in the "production functions," and we're nearly home.  Well, halfway home.   

Well, we've made a start.  A few problems remain.  One is that a plurality of economists don't like the effluent charge approach anyway, even for point sources.  They follow Coase and prefer to grant pollution entitlements to be traded in a free market.  Incredibly (to me) this view has prevailed.   

In principle they profess not to care what worthy few get the original entitlements, but in practise a select company of ancient and honorable polluters get them.  We now call these "offset rights," a new form of property.  In the L.A. Basin (South Coast Air Quality Management District), a few have grown rich by establishing their respective histories of pollution which they can now sell to others who wish to continue this wholesome tradition.  The demonstration effect on those contemplating new and as yet unregulated forms of pollution may be imagined.   

Those needing air to breathe?  Well, according to the modern philosophers they can enter the market, buy up offset rights and retire them.  Thus is fulfilled Robert Ingersoll's forecast a century ago that if some corporation could bottle the air they would charge us to breathe.  It seems to confirm this dour warning from a former Secretary of Labor:  

"We soon  discovered ...  the danger of allowing economic policy to be dominated by business or financial interests or, which usually comes to the same thing, orthodox economic analysis."  (Marshall, p.ix) (emphasis added)

The public has learned what is being done to it, finally, and is rebelling at the Coase logic, which only a Chicago economist could love.  Offset rights are on the ropes.  To simplify, therefore, I am not going to speculate how Coase might be applied to nonpoint, but just ignore it.  I will treat effluent charges, and taxes on surrogates, as the conventional economic solution to pollution.   

But before leaving this there is a lesson in it.   The holders of offset rights, whether "ancient and honorable" or "innocent purchasers," are demanding compensation.  Never mind about asking them to pay the victims; they demand payment to stop!  (Polakovic, 1987)  

They will probably get it, for if the system be changed, there will be a taking of something, which they claim is property.  Such is the force of the Great Secular Superstition, that unearned gains are sacred, even those originating with something as unworthy as dumping crud on other human beings.  This superstition is why effective control seems so expensive.  My remarks will not be instructed by it.   

The surrogate approach may work through regulation and prohibition as well as taxation.  Banning DDT and other organochlorines after 1972 has solved or prevented a lot of nonpoint problems, as you know.  We may also tax or ban other pesticides of long residual life, stimulating a predictably successful quest for pesticides that self-destruct after doing their job.
You've heard the traditional spiel, it is arguable.  We can inhibit nonpoint pollution, in some ways optimally, by controlling surrogates.  But let's look at the problems that would remain.   

 a.  Taxes overlook the locational element, whereas damages vary according to the site of the runoff.  A tax imposed only in critical areas is avoidable by importing the input from tax-free zones.  We could tax uniformly everywhere; but a uniform tax on, say, nitrogen fertilizer would, in order to protect certain waters, reduce yields from all lands.  Presently that would pull more acres into use, worsening other problems.   
b.  Taxes raise revenue, and recipients develop vested interests in the revenue, interests which may come to override the regulatory purpose of the tax.  The main issue of 19th century tariff debates was regulation vs. revenue.   
c.  Excise taxes are not leakproof.   ... The underground economy sometimes rises to the surface, in episodes of rebellion, when deregulation is the vogue in government.  I favor some kinds of deregulation myself, but the repressed cowboy psychology seizes these opportunities, too, to evade legitimate taxes and prohibitions.   

There is a grand tradition of bailing out sellers with stocks on hand when a product is taxed or banned.  Chlordane is a recent example.  Dairy producers have been compensated when they could not sell their pesticide-contaminated milk.  (Carlson, 1977, p.319)  

To sell existing stocks tax free, when new ones are banned or taxed, creates a nice windfall.  The 1972 Federal Pesticide Act also "provides for compensation to holders of patents on pesticides when registration removal occurs." (ibid.)  The problem is, this whets the appetite for future windfalls.   

It is something like the terrorism treadmill where ransoming one hostage stimulates future kidnapping.  Some clever people will develop new harmful products whose future prohibition or taxation will endow them with more windfalls, etc. ad inf.  There are more than 50,000 agricultural pesticides registered in the U.S. (Gianessi, 1987, p.1), giving a notion of the possibilities.  This is a second kind of "pesticide treadmill."   

Earl Heady has optimistically noted that herbicides are becoming more specific, tailored to certain crop problems (Nicol and Heady, 1977, p.339).  Whatever else you can say about Roundup it is anything but that, and I wonder if we have yet to find an optimal set of incentives to bend the twig of research in desirable directions.   

d.  A tax on nitrogen could be avoided by growing legumes.  Not a bad idea, perhaps, all things considered, but it just scratches the surface of the kinds of substitution, some of it unpredictable, that can occur when you tax a surrogate rather than the damaging effluent itself.   
e.  Taxing a surrogate fails to distinguish among individual applicators.   ...
f.  The objectivity and moral authority of the professionals on whom we must rely to evaluate pesticides is not unquestioned.   ...
What would happen if their objectivity were questioned on the grounds that they accept large, directed grants from pesticide producers, let faculty members consult for the same, and push faculty members into grantsmanship?  Would Rachel Carson have found happiness in a UC Department of Entomology?  Will Frances Moore Lappé?  Was Earth Day conceived under a grant from Monsanto?   
U.C. Entomology Professor Robert van den Bosch was not amused by the dominance of what he called "the pesticide mafia."  His Pesticide Conspiracy (1978), although tendentious, cites enough specifics to impugn several U.C. administrators, other universities, the USDA (that "wholly owned subsidiary" of the chemical industry), many congressmen, bankers and food processors, farm employers, most producers, salesmen and lobbyists, and at least one Nobel laureate.  It is not a reassuring picture, nor is it reassuring that van den Bosch has been answered, if at all, by ridicule, personal abuse, and whispering.  I draw the curtain of diplomacy over wherever these thoughts may lead.   

Moral authority or not, there are questions of efficiency and expedition.  The mills of EPA may or may not grind exceeding fine, but they do grind exceedingly slowly.  Since 1972 EPA has arrived at suspending only 79 active ingredients.  Most of its "reregistration" reviews are still in some interim stage.  Apparently industry advances new toxins much faster than EPA reviews them, so the inventory of pending reviews can only grow. 
g.  The case for "proper pricing of inputs" is most persuasive when we can show that everything else in the system is working right first, as the optimal background we are to avoid distorting.  But that is conspicuously untrue.   ...
In fact, land use decisions are superimposed on a settlement pattern based on massive market failure in land.  The phenomena rather imprecisely called "land speculation" and "absentee ownership" betray market failure; and no one disputes there is massive regulatory failure in pricing and subsidizing transportation, which in turn determine land rents and values.  Result: the land market is not efficient; land is not properly priced and allocated to begin with.  This is the thread I will follow, although it may run afoul of The Great Secular Superstition.   Read the entire article

Karl Williams:  Land Value Taxation: The Overlooked But Vital Eco-Tax
I. Historical overview
II. The problem of sprawl
III. Affordable and efficient public transport
IV. Agricultural benefits
V. Financial concerns
VI. Conclusion: A greater perspective
Appendix: "Natural Capitalism" -- A Case Study in Blindness to Land Value Taxation

The process of monitoring and assessing LVT itself leads to a more subtle, more environmentally-appreciative understanding of how best to prioritise conflicting demands on land. Should a tract of land best be used for green space for local residents, a light rail corridor or employment providing development? LVT assessment inherently weighs the pros and cons of a whole range of intangible costs and benefits for the wider community now and into the future, and eliminates corrupting "NIMBY" motives and rent-seeking behaviour that influence existing planning and development decisions. In response to the accusation that LVT assessment is little more than a best guess at quantifying values that are inherently unquantifiable, LVT advocates respond "Guilty as charged!" However, they then add, "Our good guesses are based on solid, objective methodology and are better than wild guesses, and even most wild guesses are better than the decisions made today." Currently, many natural resources are almost assigned a worthless value because, not entering the mainstream marketplace, they usually have no $ tags hanging off them - hence the existence of externalities whereby the environment is plundered as near worthless. So even wild guesses at the value of land and other natural resources are better than the present situation, in which the "no guess" decision effectively assigns natural and community resources a zero value.

One way or another, it is necessary to quantify and prioritise the real value (in a broad sense) of natural resources to better account for economic externalities. In the end, only if a prospective resource user is prepared to pay the full cost of utilising land and other natural resources will resource extraction or development go ahead. The intrinsic nature of the LVT assessment process considerably assists in such cost estimation.

LVT's foundation of detailed land use assessments will also help expose the true costs of subsidies for natural resources, which effectively amount to negative eco-taxes. Subsidies come in all shapes and sizes, often barely visible, and urgently need to be exposed and evaluated. Even some harmful subsidies which are labeled land taxes have nothing to do with genuine LVT. Banks gives the example of a Brazilian tax which was levied on unimproved land but was reduced by up to 90% on land used for crops or pasture. Forests were classified as unimproved land and were therefore taxed at the full rate, which induced settlers to chop down the trees to reduce their tax liability." ...  read the entire article

Nic Tideman: The Structure of an Inquiry into the Attractiveness of A Social Order Inspired by the Ideas of Henry George
 I. Ethical Principles
A. People own themselves and therefore own what they produce.
B. People have obligations to share equally the opportunities that are provided by nature.
C. People are free to interact with other competent adults on whatever terms are mutually agreed.
D. People have obligations to pay the costs that their intrusive behaviors impose on others.
II. Ethical Questions
A. What is the relationship between justice (as embodied in the ethical principles) and community (or peace or harmony)?
B. How are the weak to be provided for?
C. How should natural opportunities be shared?
D. Who should be included in the group among whom rent should be shared equally?
E. Is there an obligation to compensate those whose presently recognized titles to land and other exclusive natural opportunities will lose value when rent is shared equally?
F. Can a person who is occupying a per capita share of land reasonably ask to be left undisturbed indefinitely on that land?
G. What is the moral status of "intellectual property?"
H. What standards of environmental respect can people reasonably require of others?
I. What forms of land use control are consistent with the philosophy of Henry George?
III. Efficiency Questions
A. Would public collection of the rent of land provide enough revenue for an appropriate public sector?
B. How much revenue could public collection of rent raise?
C. Is it possible to assess land with sufficient accuracy?
D. How much growth can a community expect if it shifts taxes from improvements to land?
E. To what extent does the benefit that one community receives from shifting taxes from buildings to land come at the expense of other communities?
F. What is the impact of land taxes on land speculation?
G. How, if at all, does the impact of shifting the source of public revenue to land change if it is a whole nation rather than just a community that makes the shift?
H. Is there a danger that the application of Henry George's ideas would lead to a world of over-development?
I. How would natural resources be managed appropriately if they were regarded as the common heritage of humanity?    Read the whole article

Jeff Smith: What the Left Must Do: Share the Surplus
The much and justifiably criticized corporation is in essence its corporate charter, given value by limiting the liability of managers, directors, and investors. It’s worth at least the cost of the insurance payments not made by the corporation, which would equal the costs imposed upon worker, customer, and nature. As the “need” arises, legislatures extend limited liability even further: Congress legally lowered the greater risk of nuclear power to benefit Westinghouse, of the Valdez oil transport spill for Exxon, and the Y2K software design bug for Microsoft. Politicians define legally “safe” amounts of polluted air and water for GM and Monsanto, keeping safe the wealth of those responsible.

Not to be outdone by any legislature, the Supreme Court has ruled in favour of compensating landowners for environmental “takings”, but has remained silent about landowners compensating the public for any “givings”, as when site values skyrocket near a new light rail stop. Molly Ivins wrote,
"Henry George must be in his grave spinning' like a cyclotron. We, the people at large, make the land more desirable; and then the landowners want us to pay them because we won't allow them to poison the air or to pollute the rivers." (1995 March)
That’s how great fortunes are made: by sloughing off private costs (which become “negative externalities”) while soaking up public benefits (some “positive externalities”). Land titles, corporate charters, and other privileges – mere pieces of paper – are worth trillions each year. The corporations – from the Federal Reserve to Exxon (both founded by the “oiligarchy”) – that receive these privileges make their owners rich or richer. Their wealth is not compensation for the exertions of either labor or capital, not profit in the market from output, but rent from present lobbying of legislatures or past conquest of others’ lands. Thus laws (“privilege” means “private law”) funnel multi-trillions of dollars each year from the many to the few.

Rentiers become the elite or rise higher up among the upper echelon, the puppeteers of our puppet state. Their ranks grow with every techno-advance that spurs a new monopoly and pushes up locational values. ...

Meanwhile, ignoring our common assets guarantees that we continue to pay rent rather than begin to receive rent. Conversely, insisting upon a fair share could win us the world we want. While it breaks an old habit to leave jobs behind in favour of fair distribution, just recognizing surplus empowers people. It reaffirms the very existence of our commonwealth and challenges the narrow view of property as exclusively private. While the Left gets excoriated for wanting to be big spenders, demanding a dividend in lieu of waste and a shift of taxes from individual effort to social surplus helps refurbish the Left’s image.

The call to share the commonwealth enjoys an unshakable moral base and gets high marks for real world success, unlike taxes upon true earnings. Once implemented, sharing rent will grant us leisure – time enough to evolve and reconnect with friends, family, and neighbours – and drain away fortunes rather than let the fortunate continue to soak society. Hence support for shifting taxes and paying dividends to the citizenry grows already, without the Left’s leadership. It’s time to run with the banner of an extra income for everyone, in the halls and capitols of governments everywhere. To liberate humans from exploitive labor, let us advance the sharing of society’s surplus. Read the whole article

Jeff Smith: Sharing Natural Rents to Sustain Human Society
To get rich, or more likely to stay rich, some of us can develop land, especially sprawling shopping centers, and extract resources, especially oil. While sprawl and oil depletion are not necessary, they are more profitable than a car-free functionally integrated city. Under the current rules of doing business, waste returns more than efficiency. We let a few privatize rent -- ground rent and resource rent -- although rent is a social surplus. As if rent were not profit enough, winners of rent have also won further state favors -- tax breaks, liability limits, subsidies, and a host of others designed to impel growth (20 major ones follow herein).

If we are to sustain our selves, our civilization, and our eco-system, we must make some hard choices about property. What we decide to do with rent, whether we let it reward our exploiting or our attaining eco-librium, matters. Imagine society waking up to the public nature of rent. Then it would collect and share its surplus that manifests as the market value of sites, resources, the spectrum, and government-granted privileges. Then we could forego taxing labor and capital. On such a level playing field, this freed market would favor efficiency - the compact city - not waste - the mall and automobile. ...

Drawing their cue from the public, governments tolerate "rentention", the private retention of publicly-generated land values. Lacking this Rent, states turn to taxes. But to grow the economy, all governments -- left, right, or undecided -- hustle to stimulate development; they cut taxes and slop subsidies. Going beyond the call of duty, the state excuses producers' their routine pollution and limit liability, thereby cutting the cost of insurance. Companies that don't impose on nature, worker, or customer are not benefited at all but lose a competitive advantage. On this tilted playing field, one with the lumps of subsidies and the tilts of taxes, technologies lean and clean have a hard time competing as suppliers of materials, homes, food, rides, and energy. ...

Now wipe out the taxes, subsidies, liability limits, and rent retention. Instead, replace all that with running government like a business. Charge full-market value for state acknowledgements (the seven secret subsidies):

  • corporate charters,
  • standards waivers,
  • utility franchises,
  • monopoly patents,
  • communication licenses,
  • resource leases/claims, and
  • land titles/deeds

Collecting rent for government-granted privileges would not only raise trillions but also whittle corporations down to a competitive size, less hazardous to democracy.

Besides charging what privileges are worth, government should also replace license with responsibility ("internalize the externalities"). To temper the temptation to use lands both fragile and valuable, society could impose surcharges - an Ecology Security Deposit, Restoration Insurance, Emission Permits, and fines when users exceed standards. To minimize all these charges, producers would seek sustainable alternatives. Getting and sharing rent from land titles is the centerpiece of this geonomic revenue reform. Each phase of such a revenue shift motivates sustainable choices in its own way. ...

Geonomics draws its power to predict and fix what ails economies by being grounded in reality. It holds to the notion that economies are not apart from but part of the embracing eco-system. As part of whole, economies self-regulate by the same natural feedback loops. The prey/predator cycle is mimicked by the pricing cycle, also known as the Law of Supply and Demand. This familiar pattern is found, too, in the Share Rent Cycle.

(1)  Getting more rent, people work less, so output drops.
(2)  Less output lowers land values and deflates the rent-share.
(3)  Getting less rent, people work more.
(4) More output raises site values and swells the rent-share.
(1) Again, ad infinitum.

Thus, production is put into balance with consumption and work with play. Geonomics yields a policy that's not at war with but aligned with nature as model. Perhaps the most central feature of economics is price. Price is to production what DNA is to reproduction, the guides to growth. Rather than distort price with taxes and subsidies, with license (so-called "externalities") and rent-retention, geonomics respects the integrity of price, allowing it to accurately reflect our costs and values, by sharing rent. Then economies ("geonomies") can operate without the deadweight losses of taxation and rent seeking....  Read the whole article

The Most Rev. Dr Thomas Nulty, Roman Catholic Bishop of Meath (Ireland): Back to the Land (1881) 

Land Monopoly Usurps God's Gifts to All.
Thus, on the highest and most unquestionable authority, are we forced to conclude that, owing to the monopoly which the landlords have usurped in the land of the nation, they sell out the "use of the original and indestructible powers of the soil"; of "the natural and inherent powers of the soil"; of "the natural powers of the soil"; that is to say, they sell the use of God's gifts like so many articles of private property, and as if they were purely the result of their own toil and labour.  Read the whole letter

Bill Batt: The Nexus of Transportation, Economic Rent, and Land Use
... The failure to collect site rent leads to a distortion in land use configurations. If patterns unfolded along the lines of both social preference and economic efficiency, high value landsites would tend to have high value buildings, and low value landsites would tend to be vacant or have very modest buildings. Consistent with this, urban centers sites would tend to have office and commercial use, surrounded by lower-value residential land uses, and still further out would be farms and forests. The ratio of building to land value, land to total value (or for that matter any other ratio between buildings, land, and total values) would be relatively constant throughout a region. Instead, the ratio of land value to total value consistently tends to reveal a patchwork of random development. This inefficient settlement of land sites is what we know as sprawl.

Land Rent is Capitalized Transportation Cost
There is another dimension to the distortion of land use in contemporary life. That is the heavy subsidy granted to motor vehicle transportation services. Estimates are that the typical driver pays only about a tenth of the true cost of his travel; society picks up the rest. This profuse subsidy paid to private automobile and truck transportation further encourages people to locate on sites at far greater distances from where they would choose than if they had to pay the full burden of that travel. ...

This relationship has been demonstrated more empirically in a recent study by the Urban Land Institute. The author concluded that, for Portland Oregon,

each additional mile [traveled] translated into slightly more than $5,000 in housing costs; closer-in locations command a premium, those farther out save money. A ten-mile difference, all other things being equal, would amount to about $56,000 in new home value.

For a household in which one worker drives downtown (or at least to a more central location) to work, that ten-mile difference may amount to 4,600 miles annually, assuming 230 days of commuting and a round-trip of 20 miles each day. Moreover, if non-work trips to the central area and elsewhere doubled that amount, the tradeoff would be about 9,000 miles annually, which could mean a higher/lower driving cost of $3,000 annually, not counting the time saved/spent.(7)

That's the savings for living closer to the urban center by ten miles. If the urban resident has to rely upon a car nonetheless, subtracting some $3,000 annual travel expenses will still leave him paying again that much, and likely more, to own a car. Seven years ago James Kunstler put the true costs along with other experts at about $6,100 annually.(8) The American Automobile Association calculated that a car driven 15,000 miles in 2001 cost 51¢ per mile or $7,650.(9) Even that figure reflects only direct costs to the driver, not those passed on to society. One study calculated that the total costs of motor vehicle transportation to our society equal approximately one-fourth of our Gross Domestic Product (GDP).(10) In 1991 road user fees totaled only about $33 billion whereas the true costs to society were ten times that;(11) put another way, drivers paid only 10% of the true costs of their motor vehicle use.(12)

The latter figures include externalities like pollution and the costs of highway crashes. Hortatory public pleas for people to tune up their engines so they pollute less, inflate their tires properly, and drive more safely are not likely to change the reality that people are forgetful and fallible.  ...

Correcting Distortions by Pricing: Increasing the Recovery of Transportation Service Costs
With respect to charges upon transportation services and externalities, there are several components to a proper pricing design.(25) The first step to proper pricing is to identify the proportion of transportation services that ought rightly to be seen as private goods as opposed to public goods.(26) Although this is a daunting task, the frequent figure used is 80 percent - 20 percent proportion.
  • The public good proportion of road use reflects the amount of reliance by services provided by the government and associated agencies like mail service, national defense, public safety (ambulance, police and fire departments), and so on.
  • The private use of the roads constitutes the overwhelming amount of its use. This means that as a rule 80 percent of the highway use charges should be paid by individual drivers, directly or indirectly.
It is easy to distinguish five elements of transportation service cost: capital investment, maintenance costs, regulation costs, environmental externalities and congestion costs. Each of these calls for a different treatment with respect to revenue design. ... read the whole article

Bill Batt: Stemming Sprawl: The Fiscal Approach

We do an awful lot of driving just to do what we need to do. This is because transportation engineers and land use planners have confused two fundamental concepts: access and mobility.

By confusing these two principles, we spend an inordinate amount of money on transportation services, most of it on roads and highways. One 1993 study calculated that the total costs of motor vehicle transportation to our society equal approximately a fourth of our gross domestic product (GDP).[3] The study concluded that "when the full range of costs of transportation are tallied, passenger ground transportation costs the American public a total of $1.2 to $1.6 trillion each year. Just the costs of automobile crashes represents a figure equal to 8 percent of the American GDP.[4] Japan, by way of comparison, spends an estimated 10.4 percent to satisfy all its transportation requirements, although the figure might be a bit low because not all externalities are included in the calculation.[5] Road user fees in 1991 totaled only about $33 billion, whereas the true costs to society were ten times that;[6] put another way, drivers pay only 10 percent of the true costs of their motor vehicle use.[7] The balance is paid by society, effectively subsidizing highway use by paying for all but the marginal out-of-pocket operating costs. ...

Such are the savings for living closer to the urban center by ten miles. If the urban resident has to rely on a car nonetheless, subtracting some $3,000 annual travel expenses will still leave him paying again that much (and likely more) to own a car. Author James Kunstler put the true costs along with other experts at about $6,100 annually seven years ago.[9] The American Automobile Association calculated that a car driven 15,000 miles in 2001 cost 51 cents per mile, or $7,650.[10] This figure reflects only direct costs to the driver, not the additional costs passed on to society.

The latter figures include externalities such as pollution and the costs of highway crashes. Hortatory public pleas for people to tune up their engines so that they pollute less, to inflate tires properly, and to drive more safely are not likely to change the reality that people are forgetful and fallible. Pollution-free cars are not available; people must drive to participate in this society. The consequences of sulfur dioxide, carbon dioxide, and ozone are no longer a matter of debate; they are scientific fact. Despite frequent headlines about replacing the internal combustion engine, all the realistic substitutes also ultimately rely on fossil fuel power, solar-powered cars are far in the future, if at all, and also fail to deal with any transition. And every person driving his or her own car multiplies the probabilities of accidents. When people step into a car, they are seldom mindful of such odds. Yet if the direct pecuniary costs of driving increase in any substantial way, there will surely be significant changes in the trade-offs involved in housing/transportation choices. As will be made clear later, making costs visible and linking them to private personal behavior is one way to ensure that transportation pays its own way. ...

Stemming Sprawl: Command-and-Control Measures
Policymakers have two modes of leverage by which to implement public will: 1) so-called command-and-control approaches that are typically enforced by what state and federal constitutions group under "police powers" and 2) fiscal approaches that typically involve a variety of taxes, fees, fines, and other charges that derive constitutionally from either police powers or "tax powers." When governments administer either of these powers, they are legitimate and authoritative. Fiscal measures available to governments can come from either ground. The charges that the private sector usually impose differ in that they usually are responsive to market forces. Prices that are established by government, however, are not necessarily responsive to market forces, nor are they intended to be. Rather, they are set in order to accomplish specific public policy goals.[19] They can be no less efficient, however, when responsibly instituted.
19. One recent exploration of this is a chapter titled "Catalytic Government: Steering Rather Than Rowing," in Reinventing Government: How the Entrepreneurial Spirit Is Transforming the Public Sector, ed. David Osborne and Ted Gaebler (New York: Penguin, 1993).
Governments face the challenge of knowing which of the tools at their disposal — command-and-control approaches or "pricing" approaches — will best serve effective and efficient achievement of public policies. Only in recent years, however, has there been a renewed interest in fiscal levers to achieve goals that policymakers seek to achieve. There is particular interest among students of welfare economics in incorporating costs earlier regarded as externalities, especially in designing environmental policies. Moreover, the use of pricing approaches to recover costs of government services that have a high level of private good about them can bring about more attractive and achievable goals than reliance on conventional police power approaches. User fees, environmental fees, and other such fiscal tools have become more fascinating — at least to students of public policy — than conventional taxes.
The renewed interest in fiscal approaches comes in recognition of the fact that traditional command-and-control approaches have not been successful. Government authority is far more effective at prohibiting and controlling than it is inducing and channeling.[20] Three illustrations of failed command-and-control approaches will demonstrate this: zoning, urban growth boundaries, and altering (usually expanding) political jurisdictions. ...
Stemming Sprawl: Pricing Measures for Transportation
From the foregoing, it is clear that insofar as the causes of sprawl development are economic, the solution needs to be economic as well. The equilibrium of forces can be restored in two ways:
1) by charging the true marginal costs of motor vehicle transportation to users and
2) by recovering the economic rent from urban site owners that is really the socially created value.

It is easy to distinguish five elements of transportation service cost: capital investment, maintenance costs, regulation costs, environmental externalities, and congestion costs. Each of these calls for a different treatment with respect to revenue design. Capital costs are best recovered by recapturing the land rent proximate to the highway corridors. This is socially created value, which is better used to honor debt service of infrastructure investment than allowing it to be retained as windfall gains by titleholders to property close by. User fees, most aptly linked to the purchase of motor fuel and tire wear, serve as a proxy for the use of the roads and can be designed to be commensurate with use. As the wear and tear of roads as well as police patrol, snow and ice control, and signaling all involve operating and maintenance costs, such charges are easily linked with benefits received. In the future, still more accurate systems of service charges are likely to appear: Singapore, Hong Kong, and New Zealand are already reliant on electronic devices that record road use by time, place, and vehicle weight.

Ensuring the safety of drivers and vehicles through licenses, registrations, and inspections is most appropriately financed by fees commensurate with the costs of their administration. This way, if a vehicle is used but seldom, it is charged on the basis of its identification rather than assuming any projected level of use. Environmental externalities such as pollution costs can be linked to the polluting source, such as diesel fuel and gasoline consumption, to the full extent necessary to equilibrate air quality and other environmental ambiences. Congestion costs, the last of the major components of a pricing design for highway use, are partially paid for by the time loss of those caught in traffic. The costs of time lost due to highway congestion are enormous: In 2000, the average driver spent 62 hours sitting in traffic at a nationwide cost of $68 billion in gas and time lost In Los Angeles, the average driver spent 136 hours stalled in traffic at an average cost of $2,510.[33] Commuting times were also 20 percent longer than they were a decade ago, about 22 minutes one way nationally on average but as high as 32 minutes on average in New York.[34] But not all people's time is valued equally, and people themselves value their time differently at different times, and it is unfair to require people to impose their congestion on others. Therefore, congestion pricing, being explored in several urban regions, provides a rationing of limited highway space. In a sense, that payment for space usage, in time or money, is a form of land rent. ... read the whole article

Hanno Beck:  What The Polluter Pays Principle Implies

    "But the funny thing is, you don't really believe it yourself," says Vernon. "You aren't being consistent. You say goods and services that we produce belong to the producers and no one else. But you support the income tax and the sales tax. Those taxes take away from the producer, without his or her consent, part of what he or she produced. So it doesn't seem that you really believe your own claims. Why should people support the Polluter Pays Principle that says they are stuck with negative products they produce, when at the same time you wouldn't allow them to keep the positive products they produce? Sounds like an uneven deal."

    Sara is shocked. But she has to admit Vernon has a point. "Hmm, I guess this might be part of why the Polluter Pays Principle doesn't excite as much support as it should. If we lived in a world where people get to keep the full value of whatever their labor and their investment yields, then pollution would stand out in sharp contrast, as a crime against innocent people and their property. The Polluter Pays Principle would be totally obvious then."

    "And instead," says Vernon, "we're surrounded by cases of theft by income tax, by sales tax, and so on. Well then, no wonder people aren't shocked when the Polluter Pays Principle isn't applied. And no wonder some people don't even see the wisdom of it. "

    The bottom line question is this -- can a person support the Polluter Pays Principle and support involuntary taxation both, or is that inconsistent? Your opinion, please! ... read the whole article

Mason Gaffney: Economics in Support of Environmentalism
Looking for Mr. Goodbar
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.... read the whole article


Nic Tideman: Market-Based Systems for Assigning Rental Value to Land

Using Land Rent Information to Manage Externalities
Once a detailed land rent map has been created, one of the uses to which it can be put is to determine appropriate prices for activities that affect the rental value of surrounding land. For example, if the bidders for land include a negative adjustment for proximity to a factory that pollutes the air, then it is possible to determine, from the bids, how much greater land rents would be if the pollution were terminated. This amount can rightly be charged to the factory. Similarly, if the bidders include a positive adjustment for proximity to a private parking garage in a commercial district, it is possible to compute the amount that the presence of the parking garage adds to total rents. To motivate people to undertake an efficient amount of the activities with such positive effects, they should receive the addition to rent thus generated. Option bids result in detailed maps of land rent that reveal both the locations of activities with positive and negative effects on land rent and the magnitudes of these effects. ... read the whole article

Peter Barnes: Capitalism 3.0 — Chapter 1: Time to Upgrade (pages 3-14)

More than a century ago, English economist John Ruskin observed that the same economic system that creates glittering wealth also spawns what he called illth — poverty, pollution, despair, illness. It makes life comfortable for some, but does so at considerable discomfort to others.

Modern economists’ term for illth is negative externalities. By this they mean the costs of economic transactions that are “external” to the parties involved. The classic example is a factory that dumps effluent into a river. Unlike homeowners who pay for garbage pickup, the factory’s owners pay nothing for disposing their waste into the river. But humans and other creatures living downstream do pay a cost. Plants and animals suffer and die, while cities have to build expensive treatment plants. From the standpoint of the factory owner, none of this matters. But from the standpoints of nature and society, these are negative externalities. (There can, sometimes, be positive externalities — for example, if your neighbor repaints her house, that may increase the value of yours.)

For a long time, economists assured us that the wealth spewed out by our economic machine was so great, and the illth so trivial, that we didn’t need to worry about negative externalities. If this was ever true, it’s assuredly true no longer. Contemporary climate change is, quintessentially, a problem of negative externalities. We pay owners of land beneath which fossil fuels lie. We pay drillers, refiners, transporters, and retailers. But we don’t pay nature, or anyone else, for dumping heat-trapping gases into the atmosphere. We shift this cost to our children, and take a free ride. We party, they pay.

What’s more, many negative externalities aren’t even the result of meeting genuine human needs. The word thneed doesn’t appear in any economics text, but it’s symbolic of our modern predicament. The word was coined by Theodor Geisel — better known as Dr. Seuss — in his children’s fable The Lorax. A thneed is a thing we want but don’t really need. As many parents will recall, The Lorax pits a dynamic entrepreneur (the Once-ler) against a pesky Lorax who “speaks for the trees.” The Once-ler makes thneeds by cutting down truffula trees. When the Lorax protests, the Once-ler replies:

I’m being quite useful. This thing is a Thneed.
A Thneed’s a Fine-Something-That-All-People-Need!

Economists have no technical term for thneed; they assume that all “demand” in the economy is equivalent, as long as it’s backed with money. Yet surely it would be helpful to differentiate. One can imagine an axis running from needs to thneeds. On one end are such things as food, shelter, basic transportation, and health care. On the other end are Coca-Cola, iPods, and Hummers. (Significantly, needs are generic, while thneeds are typically branded.) Filling needs contributes more to human well-being than does selling thneeds, yet our economic system increasingly devotes scarce resources to thneeds.

Why do we have so much illth and so many thneeds? Because our economic operating system is far out of balance. On one side, representing owners of capital, are powerful profit-maximizing corporations. On the other side, representing future generations, nonhuman species, and millions of humans with unmet needs, are — almost nothing. The system lacks institutions that preserve shared inheritances, charge corporations for degrading nature, or boost the “demanding” power of people whose basic needs are ignored. Hence the system generates ever more illth, waste, and ever-widening disparities between rich and poor. ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 2: A Short History of Capitalism (pages 15-32)

Enclosure, in which property rights are literally taken or given away, is half the reason for the commons’ decline; the other half is a form of trespass called externalizing — that is, shifting costs to the commons. Externalizing is as relentless as enclosure, yet much less noticed, since it requires no active aid from politicians. It occurs quietly and continuously as corporations add illth to the commons without permission or payment.

The one-two punch of enclosure and externalizing is especially potent. With one hand, corporations take valuable stuff from the commons and privatize it. With the other hand, they dump bad stuff into the commons and pay nothing. The result is profits for corporations but a steady loss of value for the commons. ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 4: The Limits of Privatization (pages 49-63)

It’s tempting to believe that private owners, by pursuing their own self-interest, can preserve shared inheritances. No one likes being told what to do, and words like statism conjure fears of bureaucracy at best and tyranny at worst. By contrast, privatism connotes freedom.

In this chapter, we look at Garrett Hardin’s second alternative for saving the commons: privatism, or privatization. I argue that private corporations, operating in unconstrained markets, can allocate resources efficiently but can’t preserve them. The latter task requires setting aside some supplies for future generations — something neither markets nor corporations, when left to their own devices, will do. The reason lies in the algorithms and starting conditions of our current operating system.

The Algorithms of Capitalism 2.0

If you’ve ever used a computer spreadsheet, you know what an algorithm is. Each cell in the spreadsheet contains a set of instructions: take data from other cells, manipulate the data according to a formula, and display the result. The instructions within each cell are algorithms.

If you think of the economy as a huge spreadsheet, with each cell representing a producer, consumer, or property owner, you can see that the behavior of the whole is driven by the algorithms in the cells. Our current operating system is dominated by three algorithms and one starting condition. The algorithms are:
(1) maximize return to capital,
(2) distribute property income on a per-share basis, and
(3) the price of nature equals zero.
The starting condition is that the top 5 percent of the people own more property shares than the remaining 95 percent.

The first algorithm is what drives corporations. It tells them to sell as much as they can, pay as little as possible for labor, resources, and waste disposal, and make shareholders happy every quarter. It focuses the minds of managers every day. If they work in marketing, they wake up thinking about how to sell more; if there’s no demand for their product, they must create some. If they work in finance, they worry about margins and leverage. If they’re in labor relations, they bargain hard, replace long-term employees with temps, and shift jobs to places where wages are lower. All the while, the CEO feeds sweet numbers to Wall Street.

The second and third algorithms then mesh with the first. It’s the combination of these algorithms that causes the wheels of capitalism to devour nature and widen inequality among humans. At the same time, nothing in the algorithms requires or encourages corporations, either individually or collectively, to preserve anything.

This doesn’t mean people inside corporations don’t think about protecting nature, raising their workers’ pay, or giving something back to society. Often, they do. It does mean their room for actually doing such things is too narrow to make a difference. Nor does it mean that, from time to time, some brave mavericks don’t briefly flout the corporate algorithm. They do that, too. What I’m saying is that, in the great majority of cases, the corporate algorithm and its brethren are obeyed. For all practical purposes, the publicly traded corporation is a slave to its algorithm.

Free Market Environmentalism
One other version of privatism is worth considering. Its premise is that nature can be preserved, and pollution reduced, by expanding private property rights. This line of thought is called free market environmentalism, and it’s favored by libertarian think tanks such as the Cato Institute.

The origins of free market environmentalism go back to an influential paper by University of Chicago economist Ronald Coase. Writing in 1960, Coase challenged the then-prevailing orthodoxy that government regulation is the only way to protect nature. In fact, he argued, nature can be protected through property rights, provided they’re clearly defined and the cost of enforcing them is low.

In Coase’s model, pollution is a two-sided problem involving a polluter and a pollutee. If one side has clear property rights (for instance, if the polluter has a right to emit, or the pollutee has a right not to be emitted upon), and transaction costs are low, the two sides will come to a deal that reduces pollution.

How will this happen? Let’s say the pollutee has a right to clean air. He could, under common law, sue the polluter for damages. To avoid such potential losses, the polluter is willing to pay the pollutee a sum of money up front. The pollutee is willing to accept compensation for the inconvenience and discomfort caused by the pollution. They agree on a level of pollution and a payment that’s satisfactory to both.

It works the other way, too. If the polluter has the right to pollute, the pollutee offers him money to pollute less, and the same deal is reached. This pollution level — which is greater than zero but less than the polluter would emit if pollution were free — is, in the language of economists, optimal. (Whether it’s best for nature is another matter.) It’s arrived at because the polluter’s externalities have been internalized.

For fans of privatism, Coase’s theorem was an intellectual breakthrough. It gave theoretical credence to the idea that the marketplace, not government, is the place to tackle pollution. Instead of burdening business with page after page of regulations, all government has to do is assign property rights and let markets handle the rest.

There’s much that’s attractive in free market environmentalism. Anything that makes the lives of business managers simpler is, to my mind, a good thing — not just for business, but for nature and society as a whole. It’s good because things that are simple for managers to do will get done, and often quickly, while things that are complicated may never get done. Right now, we need to get our economic activity in harmony with nature. We need to do that quickly, and at the lowest possible cost. If it’s easiest for managers to act when they have prices, then let’s give them prices, not regulations and exhortations.

At the same time, there are critical pieces missing in free market environmentalism. First and foremost, it lacks a solid rationale for how property rights to nature should be assigned. Coase argued that pollution levels will be the same no matter how those rights are apportioned. Although this may be true in the world of theory, it makes a big difference to people’s pocketbooks whether pollutees pay polluters, or vice versa.

Most free marketers seem to think pollution rights should be given free to polluters. In their view, the citizen’s right to be free of pollution is trumped by the polluter’s right to pollute. Taking the opposite tack, Robert F. Kennedy Jr., an attorney for the Natural Resources Defense Council, argues that polluters have long been trespassing on common property and that this trespass is a form of subsidy that ought to end.

The question for me is, what’s the best way to assign property rights when our goal is to protect a birthright shared by everyone? It turns out this is a complicated matter, but one we need to explore. There’s no textbook way to “propertize” nature. (When I say to propertize, I mean to treat an aspect of nature as property, thus making it ownable. Privatization goes further and assigns that property to corporate owners.) In fact, there are different ways to propertize nature, with dramatically different consequences. And since we’ll be living with these new property rights — and paying rent to their owners — for a long time, it behooves us to get them right. ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 5: Reinventing the Commons (pages 65-78)

Thus far I’ve argued that Capitalism 2.0 — or surplus capitalism — has three tragic flaws: it devours nature, widens inequality, and fails to make us happier in the end. It behaves this way because it’s programmed to do so. It must make thneeds, reward property owners disproportionately, and distract us from truer paths to happiness because its algorithms direct it to do so. Neither enlightened managers nor the occasional zealous regulator can make it behave much differently.

In this part of the book I advance a solution. The essence of it is to fix capitalism’s operating system by adding a commons sector to balance the corporate sector. The new sector would supply virtuous feedback loops and proxies for unrepresented stakeholders: future generations, pollutees, and nonhuman species. And would offset the corporate sector’s negative externalities with positive externalities of comparable magnitude. If the corporate sector devours nature, the commons sector would protect it. If the corporate sector widens inequality, the commons sector would reduce it. If the corporate sector turns us into self-obsessed consumers, the commons sector would reconnect us to nature, community, and culture. All this would happen automatically once the commons sector is set up. The result would be a balanced economy that gives us the best of both sectors and the worst of neither. ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 6: Trusteeship of Creation (pages 79-100)

“Let us suppose,” economist Ronald Coase wrote in 1960, “that a farmer and a cattle-raiser are operating on neighboring properties.” He went on to suppose further that the cattle-raiser’s animals wander onto the farmer’s land and damage his crops. From this hypothetical starting point Coase examined the problem of externalities and proposed a solution — the creation of rights to pollute or not be polluted upon. Today, pollution rights are used throughout the world. In effect, Coase conjured into existence a class of property rights that didn’t exist before, and his leap of imagination eventually reduced real pollution.

“Let us suppose” is a wonderful way for anyone, economists included, to begin thinking. It lets us adjust old assumptions and see what might happen. And it lets us imagine things that don’t exist but could, and sometimes, because we imagined them, later do.

Coase supposed that a single polluter or his neighboring pollutee possessed a right to pollute or not be polluted upon. He further supposed that the transaction costs involved in negotiations between the two neighbors were negligible. He made these suppositions half a century ago, at a time when aggregate pollution wasn’t planet-threatening, as it now is. Given today’s altered reality, it might be worth updating Coase’s suppositions to make them relevant to this aggregate problem. Here, in my mind, are the appropriate new suppositions:

* Instead of one polluter, there are many, and instead of one pollutee, there are millions — including many not yet born.
* The pollutees (including future generations) are collectively represented by trusts.
* The initial pollution rights are assigned by government to these trusts.
* In deciding how many pollution permits to sell, the trustees’ duty isn’t to maximize revenue but to preserve an ecosystem for future generations. The trusts therefore establish safe levels of pollution and gradually reduce the number of permits they sell until those levels are reached.
* Revenue from the sale of pollution permits is divided 50 percent for per capita dividends (like the Alaska Permanent Fund) and 50 percent for public goods such as education and ecological restoration.

If we make these suppositions, what then happens? We have, first of all, an economic model with a second set of books. Not all, but many externalities show up on these new ledgers. More importantly, we begin to imagine a world in which nature and future generations are represented in real-time transactions, corporations internalize previously externalized costs, prices of illth-causing goods rise, and everyone receives some property income.

Here’s what such a world could look like:

* Degradation of key ecosystems is gradually reduced to sustainable levels because the trustees who set commons usage levels are accountable to future generations, not living shareholders or voters. When they fail to protect their beneficiaries, they are sued.
* Thanks to per capita dividends, income is recycled from overusers of key ecosystems to underusers, creating both incentives to conserve and greater equity.
* Clean energy and organic farming are competitive because prices of fossil fuels and agricultural chemicals are appropriately high.
* Investment in new technologies soars and new domestic jobs are created because higher fuel and waste disposal prices boost demand for clean energy and waste recycling systems.
* Public goods are enhanced by permit revenue.

What has happened here? We’ve gone from a realistic set of assumptions about how the world is — multiple polluters and pollutees, zero cost of pollution, dangerous cumulative levels of pollution — to a reasonable set of expectations about how the world could be if certain kinds of property rights are introduced. These property rights go beyond Coase’s, but are entirely compatible with market principles. The results of this thought experiment show that the introduction of common property trusts can produce a significant and long-lasting shift in economic outcomes without further government intervention. ... read the whole chapter



To share this page with a friend: right click, choose "send," and add your comments.

Red links have not been visited; .
Green links are pages you've seen

Essential Documents pertinent to this theme:

Top of page
Essential Documents
to email this page to a friend: right click, choose "send"
Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper