America’s Biggest Bank and America’s Biggest Crook and Cook County’s Treasurer

logo3No, they aren’t all one and the same.

I personally haven’t had any problem with JP Morgan Chase.  I had a CD with a predecessor bank and, when it matured, I retrieved it without difficulty. My real estate tax is paid thru them, and as far as I could tell my payments have been processed as intended.  Once upon a time I may have had a credit card with them.  But I long assumed JP Morgan Chase is a corrupt organization, because I seem to recall having read various things here and there, and, well, how could an honest bank become so large?

I hadn’t even thought about Morgan Chase’s role in the Madoff affair, but of course it was nontrivial, as documented by  Helen Davis Chaitman and Lance Gothoffer on their JP Madoff website (and, one presumes, in their book). They have compiled the information, most of which was floating around the Internet, that “In the past four years alone, JPMorgan Chase has paid out $28,902,150,000 in fines and settlements for fraudulent and illegal practices.”  And that, of course, is only the cases where they were caught and unable to avoid prosecution.

“Boycott JP Morgan Chase,” Chaitman and Gothoffer urge.  Great idea, and I have done so as best I can.  But I need to pay real estate tax, and as long as I live in Cook County it seems I must pay it to JP Morgan Chase.  So I wrote Maria Pappas, the County Treasurer, saying

I see from the check with which I paid my most recent real estate tax bill that you are still using JP Morgan Chase to process the County’s receipts. It’s pretty clear that JP Morgan Chase is a criminal enterprise, having paid over $28.9 billion in fines and settlements for fraudulent and illegal practices during the past four years. Why is the County unable to use any less dishonest bank to process payments? Thanks in advance for your response.

And just a couple of [business] days later, I received a response from “Customer Service Department:”

Thank you for contacting the Office of Cook County Treasurer Maria Pappas.

Cook County aims to provide efficient payment processing to the greatest number of taxpayers at the least cost to those taxpayers. Nevertheless, we acknowledge that additional considerations are relevant in the County’s choice of vendors, and we take your concern under advisement.

We hope this information is helpful and thank you for the opportunity to be of assistance.

So, they didn’t exactly say “we are going to boycott JP Morgan Chase because they’re crooks,” but it at least it appears that somebody read and understood my message.

My other recent check processed by JP Morgan Chase was used to pay Illinois State income tax. I suppose I should write somebody (Governor? Treasurer? Comptroller?) with a similar message, but I just assume that anyone responsible for administering a tax on earned income is already beyond hope. Maybe someone else will do it.



More stuff that’s still true about location and “intellectual” “property”


Photo by Jimmy Emerson, DVM, (cc) via flickr

Photo by Jimmy Emerson, DVM, (cc) via flickr

Anyone reading this blog might get bored with the number of times I say that Henry George was right, and is even more right today than in his own time.  But that’s what I do, and part of the reason for this blog is to provide a place where I can record show up.

Location is [still] everything, says the new book by Prof David R. Bell.  When I saw the title, I thought it was about land value and real estate, but no, it’s actually about marketing on the Internet and evidence that location matters, a lot, to marketers working in that [virtual] space.  For example, the best initial customers for your Internet business might be those who are relatively isolated and haven’t any local sources for your product.  Subsequent customers might be those nearby to these customers, who learn of you thru conversation or by observing distinctive shipping boxes.  And, for some reason which Bell does not try to explain, even for virtual goods people are most likely to turn to the geographically closest sources.

It’s a nice book for anyone who studied economic geography and marketing in the dark ages, bringing a few things up to date, but quite accessible to every interested reader.

Then there’s the matter of monopoly over text, part of what’s sometimes called “intellectual property” by those who seek to profit by restricting it. This comes from a fascinating interview with writer Poe Ballantine, well worth a listen in its entirely.  Ballantine has found it difficult making a living as a writer, drifting geographically and among relatively menial jobs, mainly in food service it seems. He says that after four books he was still known mainly as “the cook.” But now he has reached the point where he can actually earn a living as a writer.

[starting about 45:35 into the audio]

Q: So your writing is sustaining you financially?

A: The writing is not quite enough, but the appearances, the invitations from colleges and universities are what cover my expenses right now. They pay very well. That’s where the money is; the money is not in selling books, the money is in the universities where people go to get their writing degrees.

So maybe the fighting over copyrights doesn’t benefit the writer? But, at least, sometimes the education monopoly brings about something useful.


Local land prices show that location still matters

taken about 8 years ago by Zachary Korb, via flickr (cc)

A different vacant parcel, about 8 years ago by Zachary Korb, via flickr (cc)

Crains reports the sale of a vacant parcel in the fashionable North State Street neighborhood for $70 million — $4075 per square foot. The article says that “Under a zoning agreement the city approved in 2006, a developer could build as many as 261 residential units on the parcel,” which would work out to about $268,000 land cost per unit.  You can buy a nice residential lot in many decent neighborhoods for a lot less than $268,000 (and in less-decent neighborhoods land is practically free). Perhaps the buyer is expecting to obtain an increase in permitted density.

The article also reports that the seller, a “Miami-based developer” who has held the parcel only four months, will realize a $42 million profit.  It’s unfortunate that none of this profit goes to support the intensive and expensive infrastructure which helps keep the neighborhood functional.

Mismeasuring, or at least misreporting, America

image credit: wstera2 via flickr (cc)

Another Andro Linklater book, Measuring America, certainly worth the read especially if you’ve not read John C. Weaver’s The Great Land Rush.  Not only some history of America’s Public Land Survey System and how it facilitated prosperity (at least for a while), but also some discussion of how the new nation almost adopted the metric system. But, as with Owning the Earth, Linklater commits a big error which makes me wonder how sound the rest of the book is.

In 1830 James Thompson, a surveyor and engineer, was commissioned to lay out a town in Illinois, in the square mile of Section 9, Township 39, Range 14, Second Principal Meridian…[page 181]

No! Not the Second Principal Meridian, and even if it was, there would have to be an “east” or “west” specified (as there should be a “north” after the “39.”)  This is not an obscure fact and is referenced commercially as well as by surveyors, assessors, real estate attorneys etc. As this is wrong, how much else in the book might be incorrect?

Two dumb tax policies give Aussie millionaire a bite of your lunch

Image Credit: Marshall Astor (cc) via flickr

From Crains we have a report that McPier — the Metropolitan Pier and Exposition Authority which controls McCormick Place and Navy Pier — has paid $5.5 million for about half an acre which sold last year for just “over $1 million.” It seems to be an awfully nice profit for Drapec USA, the California-based Australian real estate operator who earlier was expected to develop the property themselves.

I don’t know that this deal was in any way particularly corrupt or dishonest.  Maybe the parcel actually quintupled in value over 14 months.  Or maybe Drapec really has better “analytical and negotiating skills in finance and real estate” than McPier (or the seller last year, BMO Harris).  But there are two things I do know:

(1) The multi-million dollar profit will be paid by everyone who patronizes restaurants in or near the central part of Chicago, where McPier imposes a 1% tax on all meals. To keep the math easy, figure the average fast-food meal costs $5.50, yielding 5½¢ for McPier.  At that rate, it’ll take a hundred million meals to buy this real estate. Of course, McPier has other tax revenues, too. And actually, not quite all meals are subject to the tax, since some nonprofit organizations, as well as governmental agencies including McPier, are exempt.

(2) The asserted purpose of McPier is to “strengthen the local economy.”   Why should the economy need to be “strengthened?” What are the obstacles preventing people from finding productive employment? Certainly one of these obstacles is taxes, not only the amount of taxes paid but also the difficulty and expence of conforming to all the applicable tax rules and regulations. Another, perhaps more important obstacle, is the vacant and underused land throughout the City.  Land can be forced into productive use by collecting its full economic value through a land value tax.  Since nothing can be produced without labor, productive use means wages will be earned. That is the way to strengthen the local economy.  Of course, under a full land value tax, the selling price of that half-acre parcel near McCormick Place would be nominal, and Drapec would not have bought it unless they planned to begin development promptly.

Low wages mean low productivity

source: Wikimedia Commons

source: Wikimedia Commons

source: Wikimedia Commons

source: Wikimedia Commons

[L]abor is most productive where its wages are largest. Poorly paid labor is inefficient labor, the world over…. The efficiency of labor always increases with the habitual wages of labor—for high wages mean increased self-respect, intelligence, hope, and energy.

–Henry George (Progress & Poverty, Book IX, Chapter 2)

George gives plenty of examples from his time, but modern examples abound too.  I happened on a 2006 article (pdf) by Wayne Cascio comparing how Sam’s Club and Costco treat their labor.  The short answer is: Costco treats their workers much better, including higher wages, better benefits, and more job security. And, the article continues, the results are consistent with Henry George. Based on 2005 data,

 Costco’s hourly labor rates are more than 40 percent higher than those at Sam’s Club ($17 versus $10.11), but when employee productivity is considered (sales per employee), Costco’s labor costs are lower than those at Sam’s Club (5.55 percent at Costco versus 6.25 percent at Sam’s Club).

Similar differences are cited in sales per square foot, and operating profit per employee.  Obviously, the figures nearly a decade later would be different, but I suspect the comparison would be similar.

It matters how we own what nobody produced

Tenant farmers paid rent here

Tenant farmers paid rent here

[I]n Bill Clinton’s encapsulation of political strategy, “It’s the economy, stupid.” But the success of an economy can only be measured by its growth.  Since growth requires the accelerated consumption of limited natural resources, it is not a sustainable model in the long run.

If you concentrate on how a place is owned, however, the perspective changes.  As this book demonstrates, matters of laws, of rights and of politics become crucial, taking precedence over economics.  From that point of view… “It’s the neighborhood, stupid.”

…Around the world and throughout history, neighborhoods have succeeded in a million different ways.  It all depends on how the earth is owned.

That, the conclusion of Andro Linklater’s Owning the Earth, illustrates what is right and what is wrong with the book.  Our quality of life does does depend on how the earth is owned, and Georgists are aware of the importance and practicality of recognizing each individual’s right to what no one produced. But must a sound economy necessarily use more of the earth’s limited resources? Is there no practical way to use resources more efficiently? And is there no possibility that economic improvement could be measured by anything other than economic growth?

The book is wide-ranging and (mostly) well-written, making connections in place after place between how the right to use nature is recognized, and how well the community developed. It draws some connections that I hadn’t seen before, such as how the growth in mortgages on American farms followed logically from the end of homesteading.

And Linklater does devote a couple of pages to Henry George, but seriously misunderstands why George’s proposals weren’t widely adopted, saying  “[I]t is notoriously difficult to arrive at a valuation system that can clearly separate earned from unearned capital appreciation.” Here he means “separate improvement value from land value,” and he is wrong.  Practical methods of doing so on a mass basis were described back in 1970 in TRED #5  (outline), which is not posted on line to my knowledge, and in this more recent paper by Ted Gwartney, MAI.   And, of course, land values are routinely estimated by appraisers and are a component of almost every U S income tax return that involves commercial or investment real estate.

It is true that, with limited exceptions, George’s proposals weren’t adopted, but for a different reason.  Mason Gaffney has provided a compelling and well-sourced explanation (also available in a book), and it is unfortunate that Linklater seems to have been unaware of it. One wonders what else he did not know.


Retiring regional leader on how to fund infrastructure

from Wikimedia

from Wikimedia

From Marni Pyke’s interview in the Herald:

One way to pay involves value capture — establishing special taxing areas that assume that development like a new road benefits landowners by growth in sales, rents or property values, he said.

“I’m a developer,” Ranney said. “I think developers need to pay more for the value that is generated (by the project). Value capture makes sense. That is something that the real estate community isn’t too keen on — but let’s get real. If you use public dollars to generate private wealth, you can darn well pay for it.”

And an observation regarding transit progress in the region:

Noting he takes the same train from Libertyville that his father took, Ranney added that “nowhere else in the world do they have complacency about exactly the same level of service.”

Land sales price vs. what is paid for land

image credit: Onishenko

image credit: Onishenko

In order to fund community needs from a tax on land value, assessors need to estimate what that land value is.  Conceptually the task need not be difficult (Ted Gwartney outlines some options here, but a more complete and still-valid examination is in this book.) Basically, you look at sales prices for actual land transactions, and make adjustments for parcels which haven’t sold recently or where land comprises only a small part of the value.  But what happens if the buyer pays something additional, “off the books,”  for the land?

According to Peter Katz, that seems to be what often happens. This presentation at APA last March starts off slow (and self-promotional), but moves along thru some interesting territory. Regarding the price of vacant land, he asserts that, in many desirable areas, developers have to first buy (or option) the land, then negotiate with local authorities to get permission to build. Getting that permission might require agreeing to donate money (or land) for public use, or perhaps less savory expenditures, and to the developer this is part of the cost of land. If an area of any size is subject to such constraints, all the land sales are below market prices by the amount of such costs, and all sites, whether sold or not, receive assessed land values that are lower than what developers actually pay to get a buildable site.  This results in less public revenue, implying a need for other taxes, as well as a tendency to develop at lower densities than might be appropriate, when developers choose to settle for existing zoning rather than what they might be able to negotiate. Katz suggests that a formal study of this effect should be done, and nominates Lincoln Institute to make it happen.

Katz’s remedy seems to be a combination of form-based zoning codes, plus a sophisticated (and presumably accurate) fiscal impact analysis that might show denser development to actually be more “profitable” to governments.  But, responding to a question about 65 minutes into (and near the end of) his talk, he acknowledges that funding government from a land value tax would be a good way to obtain the desired development pattern, and that Henry George was a great guy.  His observation that Georgists tend to be wacky has been made before, and I can’t say it’s wrong.

Quid Pro Brew

image credit: Bernt Rostad (cc) via flickr

image credit: Bernt Rostad (cc) via flickr

I was wondering a few weeks ago why Revolution Brewing supported the lobbyist-friendly “Transit Future” funding effort.  How foolish I was, is not brewing a regulated industry desirous of government favors? WBEZ reminds us of the “Small Brew Act,” which would cut the federal taxes on the first 60,000 barrels produced. Senator Kirk, who has never done anything constructive that I can recall, toured the Lobbyist Revolution Brewery and spoke kindly of the act.

Of course, there is no just reason to impose any tax on production of beer or anything else people want, provided that land rent is collected by and for the benefit of the community. In the same situation, I might do the same thing Revolution has done, especially if I knew more about political strategy and good beer than about smart fiscal policy and public finance.  But it’s a shame they’re doing it.


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