Archive for the ‘book’ Category

“The hero turns out to be Henry George”

Ray Kroc’s first McDonalds in Des Plaines, IL, is now a historic site. Image credit: Matt Thorpe CC BY-NC-ND 2.0

I’ve complained before about Russ Roberts’ Econ Talk failing to note the importance of economic rent and land costs.  So I was pretty pleased to hear his guest Philip Auerswald say

I think the hero in all this, and I talk about this in The Code Economy, turns out to be Henry George. I mean, I think he really, you know, the 19th century U.S. economist–and he really anticipated these phenomena more clearly than anybody.

Pleased enough to read Auerswald’s new book. And he does get a lot of what George wrote about.

Auerswald’s main point seems to be that an economy doesn’t just have inputs and outputs, but what’s more important is the methods by which the inputs are used to produce the outputs. That’s “code,” and folks have been using it for 40,000 years.  In recent centuries, standardization and automation of various kinds have increased productivity — the amount of stuff which a given amount of inputs could produce.

And, as we see computers and machine-driven processes increasingly capable of replacing human labor, what will humans do?  He endorses Henry George’s analysis that, as productivity increases, rents will increase.  And he supports the citizens’ dividend (tho he does not use the term), to be funded by a land value tax.

But his concluding pages seem to assume that, of course everyone will have a guaranteed income from land rent, no problem there, but what will people do with their time? To George, the problem was to get a fair distribution (not redistribution, because by right the rent belongs to everybody) of wealth, which he expected would result, over time, in social progress and a more constructive community. When I look at Wikipedia, Flickr, some blogs and a bunch of other internet resources, I tend to agree with George. Auerswald assumes the wealth distribution, but doesn’t assume that people and the community will improve.  If I looked at Facebook or some other sites I might agree with him.

Auerswald also makes interesting use of the concept of comparative advantage, applying it to humans exchanging work with machines. Machines can do certain kinds of work millions of times faster than humans, so logically machines should do such work.  In other tasks the difference might be much less, so those tasks would remain with humans (tho I would guess at much lower wages than currently.) And then there are some “low-volume, high-price” tasks which might remain human monopolies.

*****If you’re not the editor of Auerswald’s book, stop reading here*****

This book is full of irritating errors.  On page 2 is a list of ingredients for chocolate chip cookies, comprising butter, sugar, water, salt, and chocolate chips — but no flour. Page 92 says “slavery was abolished in the British Empire in 1807,” while Wikipedia provides various dates, depending on your definition, in the 1830s or 1840s. Page 120 places Ray Kroc’s first McDonalds in “Desplaines, California.”  Page 175 calls Zipcar a “ridesharing” platform, corrected on page 213 to “car-sharing.”   “As Henry George understood nearly a century ago” on page 232 doesn’t seem likely regarding a man who died in 1897 mentioned in a 2017 book. There are probably more, that historians or various kinds of geeks would notice.

 

Won’t be finishing this book

Laurel & Hardy silhouettes. Image credit: Stephen McCulloch CC BY-SA 2.0

A Fine Mess by T R Reid. The subtitle is: A Global Quest for a Simpler, Fairer, and More Efficient Tax System. A great quest, and certainly something to investigate. Grabbed it off the library shelf, started to read, and …

Any time I see what might be a thoughtful book about taxes, I pretty soon turn to the index to see what it says about Henry George, land values, or economic rent. Hey, Reid devotes about six of his 262 pages to a section about Henry George and land value tax (tho he sort of conflates this to the “property tax” which includes improvements.) He acknowledges George’s historic significance and the logic of the Georgist argument.  Then he says:

In George’s day, government– and thus the funding needed to pay for it– was vastly smaller than what we know today… [I]n 1879 there was no Social Security, no Medicaid, no NASA, no Department of Transportation or Energy or Health & Human Services.  Some economic historians argue that the Georgian Single Tax might have been adequate to maintain the relatively minimal governmental establishment of the 1880s…No country has ever been able to fund its governments with only the Single Tax on the value of land that Henry George envisioned.

He does not say “Full collection of economic rent would be insufficient to fund all the legitimate functions of government,” tho he certainly implies it.  So a response is needed.  And available.

  • If the government provides services which make the community (city, state, country, whatever unit) a more pleasant or productive place, what is the effect on the value of land? Does this not apply to the services Reid mentions?  If it does not, why should the people continue to pay taxes for such services?
  • If all the taxes which make labor expensive and real wages low, such as the tax on earned income, payroll tax, sales tax, tax on houses, utility tax, Medicare tax, were abolished, what would be the effect on the value of land?  And what would be the effect on the need for that part of government expenditures which assist the poor?
  • In fact, how has the value of land in America changed  since George’s time? It is a national embarrassment that we do not have reliable information to address this question, but surely the answer is “multiplied manyfold.” One reasonable estimate (pdf)  of today’s value is $23 trillion (as of 2009). That’s more than the national debt.  Because land value is a function of rent, and because all taxes come out of rent, imagine how much greater land value would be in the absence of all the anti-productivity taxes as noted above.

Of course, George’s proposed tax does not apply only to land as conventionally defined.  It also includes taxes on mineral rights and extraction, electromagnetic spectrum, water rights, and more. (Mason Gaffney compiled a pretty complete outline (pdf)) It also applies to the moon and planets, should NASA or some billionaire claim rights.

So since Reid neglects to properly evaluate the potential of the single tax, I’m not inclined to read his book because I wouldn’t know what other oversights it might contain. But I did browse thru it.  Reid really likes the value-added tax: “We should…implement this tax and use the money it raises to cut taxes on work and savings. (page 255)”

Uh, what are the economic purposes of work and savings? Yeah, to buy goods and services, now or in the future.  Substituting a VAT for taxes on earned income would permit people to get earn or save more dollars — and would make more expensive the things people want to spend those dollars on.

Gaffney has provided a further case against VAT (pdf).

 

Book Extract: The Pale King

image credit: Martin Heigan (cc) via flickr

Pale King (credit: Martin Heigan (cc) via flickr)

I am in no way qualified to review works of acknowledged fiction, as I read very few.  But I have been intrigued by David Foster Wallace since a Radio National commentator observed that Wallace had, in his 1996 novel Infinite Jest, anticipated the effect of the Internet. When later I learned that his final, unfinished work, which had been assembled by his longtime editor, was about the administration of the U S Federal income tax, I couldn’t resist taking a look at it.   I thought it might give some insight into how the IRS staff manage to actually patch together the mess of U S tax law and regulations to maintain something which provides the rulers with pretty good control as well as huge revenue, without causing any effective revolt by taxpayers.

No success there, I’m afraid, which is all the more disappointing because, in Chapter 9 Wallace breaks into whatever narrative structure the book has to say that, hey, here I am, a real person, and this book portrays real people and events modified only slightly.  Then he points out that on the copyright page is the statement that “The characters and events in this book are fictitious.  Any similarity to real persons, living or dead, is coincidental and not intended by the author,” which assertion necessarily applies to his statement that the book is not fiction.

Beyond that, the work is set in the 1980s, when the tax rules were simpler, with documentation and computerization far less than today. Which meant that a lot of people spent their days manually comparing  sets of figures, on return after return, hour after hour, day after day.  I suspect that in today’s IRS much of this work has been computerized, with the human staff devoting their time to other things perhaps too horrible to contemplate.

CTA railcar image by Menace of Privilege

CTA railcar image by Menace of Privilege

Too, a lot of the book is just contrary to fact.  The description of the Chicago public transportation system, to take one aspect of interest, is simply wrong.  CTA do not operate any high-speed commuter trains, nor did they ever have a station named “Washington Square.”  And it would be virtually impossible today for a passenger, with his arm stuck in the door of a crowded train, to be dragged along the platform to his death, because every railcar has long had a red handle, at every door, which any passenger could pull to open the door and stop the train (here’s why).

That said, there are some helpful insights about how the regime makes use of dullness:

[T]he whole subject of tax policy and administration is dull.  Massively, spectacularly dull.  It is impossible to overstate the importance of this feature.  Consider, from the [Internal Revenue] Service’s perspective, the advantages of the dull, the arcane, the mind-numbingly complex.  The IRS was one of the first government agencies to learn that such qualities help insulate them against public protest and political opposition, and that abstruse dullness is actually a much more effective shield than is secrecy.  For the great disadvantage of secrecy is that it’s interesting (from page 83 in chapter 9)

And the key to success in a bureaucracy:

The underlying bureaucratic key is the ability to deal with boredom.  To function effectively in an environment that precludes everything vital and human. To breathe, so to speak, without air.

The key is the ability, whether innate or conditioned, to find the other side of the rote, the picayune, the meaningless, the repetitive, the pointlessly complex.  To be, in a word, unborable…

It is the key to modern life.  If you are immune to boredom, there is literally nothing you cannot accomplish. (pp 437-438 in chapter 44)

Words, including a new one, about money

bitcoin

Image of a tangible bitcoin by Steve Jurvetson (cc) via flickr

Having heard two tremendously amusing interviews with John Lanchester (I think one was on Bloomberg and one on the BBC, tho maybe it was ABC and somebody else; in any case there seem to be lots of interviews with him floating around.) I was looking forward to reading his new How to Speak Money. I’ve long agreed with his basic point, that people talking about financial issues use a shorthand which can confuse civilians, and it would be helpful to have a glossary handy.  What he has written gets part of the way there.

The first part of the book is an introductory, making the important point that economics isn’t a science, really can’t be in the way that physical or biological sciences are.  For one thing, chemists don’t have to worry that the molecules they’re studying will read the results of prior research and decide that behaving differently would be to their advantage.  He also notes that most of the main questions of economics remain open, but at least if we are going to discuss them we need to understand what we’re talking about.  He brings up the concept of “reversification,” whereby things come to mean the opposite of the word used to describe them.”Securitization” doesn’t mean making things more secure, but more likely less so. The “Chinese wall,” which is supposed to divide functions within financial firms to prevent conflicts of interest, is in fact neither a physical wall nor an impenetrable barrier.  And it’s reversification when the “credit” is defined as the amount of debt. (more…)

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?

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.

March 1 2015 update: I just discovered that Ed Dodson has produced a more thoughtful and detailed review of Linklater’s book.