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Natural Capital

Bill Batt: The Compatibility of Georgist Economics and Ecological Economics

Implicit in all this is the argument that manufactured capital (i.e., that created by human beings), and natural capital (those resources provided by nature) are not substitutable, as well as the belief that current practices portend irreversible consequences for the earth’s environmental stability. Nor can the various components of natural capital alone be regarded as interchangeable goods. Natural gas might in some instances be a substitute energy source for coal, and chicken an alternative protein source to beef. But fundamentally each element is to a significant extent unique in nature — fulfilling its own special niche in what ecologists call lexicographic uniqueness.

Conventional thinkers argue that these two classes of natural and man-made capital are mostly substitutable, in what ecological economists have called “weak sustainability.” But the contrary, “strong sustainability,” is at the heart of ecological economics, going even further than many authors of the Brundtland Commission Report would have accepted by recognizing the lexicographic character and place of each and every element of the biota.95 There is no definitional consensus, however. The Clinton-Gore administration, for example, established a President’s Council on Sustainable Development on June 15, 1993, and adopted the Brundtland Commission’s language. But it carefully avoided any detailed definition of what was meant by sustainability.96 Subsequent executive orders and press releases have been equally vague as to what definition of sustainability is being used,97 and to this day the matter remains unsettled. ...

Green taxes, sometimes also called corrective taxes or Pigouvian taxes, are their first candidates for consideration. This is because they can, if priced right, recover the costs of externalities in ways that allow individuals to use their own discretion about employing environmentally damaging practices. But the authors extend their thinking to cover goods and materials that may have negative ecological impacts although not yet conclusively demonstrated by science. The answer there is to rely upon a “precautionary polluter pays principle” based on the present value of the forecast impact should the worst case scenarios be borne out. The annual cost of using a car in the early 1990s, for example, was $51,656 according to their calculations.120 This would obviously entail an enormous imposition of taxes, far above the less than $7,000 direct annual costs typically shouldered by drivers now,121 the rest of which are now passed on to society generally. Grave doubt exists about the potential impact of various externalities of driving, along with concern about the extent of damage which might possibly occur to the ecosystem; this warrants employment of the precautionary principle and calls for policy solutions to curtail this travel mode. Complete prohibition of certain materials and chemicals may be warranted in some cases.

The authors would further impose the full costs, in the form of taxes, on the depletion of natural capital resources. This in turn would both discourage the improvident use of such materials and encourage their re-use and recycling beyond what economic arrangements now provide for. They also argue strongly for tariffs and trade barriers that would foster linkages between existing local community enterprises, since they view economic globalization as a “race to the bottom” with respect to the exploitation of both resources (land) and labor. These tariffs would apply not only to protect the viability of certain social and political units but to ecological systems generally, so that their protection would be better guaranteed against the ravages of market exploitation.... read the whole 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


This book by Hawken & Lovins is meticulously researched, well-argued and rather deserving of its best-selling status, yet it completely misses the need for LVT. As such, it is illustrative of how so many major advantages of LVT can be momentarily grasped and then mislaid.

At the very beginning[20] the authors make a exhaustive list of natural resources (which they term natural capital) used by humankind, yet fail to mention the one on which we all need to stand! In the wide-ranging review which follows, the authors appear to come tantalizingly close to grasping many of the direct benefits of LVT, only to lose the thread and conclude the book, no closer to a realisation of the monumental impact LVT would bring about.

The authors devote a full 17 pages[21] to the Brazilian city of Curitiba, holding it up as emblematic of an enlightened municipality which has overcome a whole raft of economic, social and environmental problems. Yet, even though the authors explicitly state that "The city runs mainly on property taxes"[22] and acknowledge how property taxpayers are intimately involved in the decision-making process[23] , they investigate these matters no further. Had they understood how LVT allows environmental custodianship to be self-funding by recycling enhanced land values, they would have seized the significance of LVT in their account of Curitiba's green renewal which concludes "And green begets green; land values around the new parks have risen sharply, and with them tax revenues."[24]

Elsewhere, they see the small picture, but not the big. A solid case is mounted to make driving and parking vehicles bear their true costs[25] (this is, of course, LVT in the form of renting of temporary or "moving" parcels of land), but cannot see the wood for the trees.

Urban sprawl deservedly receives much attention, yet the powerful impetus LVT gives to put land to its optimal use and bring about a more compact cityscape remains unnoticed. Toronto's inducement to clustering around urban corridors is praised, but no inquiry is made into its "density bonuses and penalties".[26] Also left tantalizingly unexplained is the statement "Mortgage and tax rules that subsidize dispersed suburbs are another long-standing cause of sprawl."[27]

Geoism eliminates the curse of land speculation by making it economically unaffordable to hold onto land that is not put to its optimal use. In the study of Curitiba, the authors recognise the ills of speculation[28] , but demonstrate their limited vision by stating "A good start to correcting these costly distortions would be to make developers bear the expenses they impose on the community."[29] Of course, we ALL should pay for costs we impose on the community, just as the authors rightly say elsewhere that we should all pay for costs imposed on the environment. In terms of LVT, "in proportion to what we take from the community (in terms of the exclusive use we make of land), we should repay." Or, in more general terms, "Pay for what we take, not what we make." On this point (the present practice of taxing production), the authors have clearly seen the inequity and economic disadvantages of such punitive taxes[30] , as well as the folly of subsidising the use of natural resources (surely such subsidies should be seen as negative eco-taxes?!)[31] .

The authors' otherwise first-rate survey and set of proposals ends on a disappointing and baffling note when take the conventional approach of viewing the Earth as a speculative commodity and bemoan plummeting real estate prices in Southern California[32] . While the case for adopting a wide range of technical innovations has been convincingly argued, until the Geoist perspective has been taken, there is little to substantiate the authors claim that this a "revolutionary paradigm for the industrial economy".    read the entire article

Bill Batt: The Fallacy of the "Three-Legged Stool" Metaphor
Taking first the argument that spreading the tax burden over as wide a base of sources as possible, it is best to begin by noting that revenue streams can be drawn from only three elements of the economy: 
  • Land,
  • Labor, and/or
  • Capital. 
Standard textbooks for Economics 101 typically start with recognition of these factors, even if they usually give insufficient attention to Land as a component.  Classical economics, culminating particularly in the tradition of Henry George, includes in the idea of Land any and all components of value not created by human hands or minds.  It therefore means not just locational sites on the earth's surface that might be bought and sold as real estate, but other elements of so-called "natural capital" as well: 
  • the electromagnetic spectrum,
  • air,
  • water,
  • fish in the ocean,
  • mineral wealth,
  • airport time slots, and so on. 
Those elements have a market price, and can be -- indeed are -- often subject to taxation.  It is important to note, however, that taxes on such Land are capitalized in the market value of their worth; they cannot be passed forward or backward because their supply is essentially inelastic. 

This is important, as will be noted below, because imposing such taxes incurs no excess burden on their use or upon the general economy.  Taxing such bases is totally neutral and completely efficient.  Indeed, it is the failure to tax Land as stated that leads to economic distortions and causes an economy to function at a sub-optimal level.  Land, whatever its form, has a market value only to the extent that a human presence exists to make use of it, and it acquires that value due to the accretion of economic rent, the return that comes to rest on such factors.  

Taxes on Labor and Capital, in contrast, are always shifted.    ...  Read the whole article



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