Archive for the ‘Georgist teaching resources’ Category

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.

 

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.

Land value depends on the definition

Image of Drake Hotel by Teemu008 (cc via flickr)

Image of Drake Hotel by Teemu008 (cc via flickr)

In an urban context, absent special environmental issues or legal constraints,  land value and location value are pretty much the same thing.  So we read in Crains that the Drake Hotel is on a 63,000 square foot parcel valued at $150 million, implying this land is worth about $2381/square foot.  But no, the location probably isn’t worth that much.  Rather, the land is leased by the owner of the structure, and the lease document says that, every five years, the land value is to be estimated and the annual rental set at 10% of the land value.

Possibly 10% was a reasonable return in the past, but in today’s zero-interest-rate world no safe investment would yield that much. Rather, the owner of the land actually owns two things: (1) the land, and (2) the privilege of requiring the building owner to pay an above-market rental rate.  Were we to value the land “as vacant,” which is the correct way to estimate land value for taxation purposes, then (2) would disappear and the land would be worth, more or less, the same per square foot as other land in the very prestigious immediate neighborhood.

It would be interesting to see what the lease says specifically about how the land value is to be estimated, and to read the (certainly confidential) document describing how the $150 million value is justified.

For more discussion about methods of valuing land for assessment purposes, duck around for works by Ted Gwartney on the subject, or consult the old but still-relevant TRED volume.

Location remains critical, even as the criteria change

image credit: xeni via flickr (cc)

image credit: xeni via flickr (cc)

The Internet doesn’t make the earth economically flat.  Some locations are still worth many times as much as others.  But technology can affect the criteria for “most valuable site,” as most recently illustrated by the sale of One Wilshire Blvd in Los Angeles for more than twice the price per square foot of a mostly similar office building nearby. It also commands about twice the rent, per square foot.

The difference: One Wilshire is ” the primary terminus for major fiber-optic cable routes between Asia and North America,” and is therefore is a location prized by telecommunications firms.

“You can’t reproduce the connectivity,” said real estate broker Kevin Shannon of CBRE Group Inc. “It’s telecom gold.”

Of course the buyer thinks it’s a fine investment that will only become more valuable in the future.  Presumably the seller thinks different.  The only thing certain is that technology will change, and the pattern of valuable sites will likely be affected.

The taxing question of land value

1_69ffd9a3b25bee3673beaa1ee0190583UK Geoists are crowdsourcing a film about the nature and benefits resulting from a tax on the value of land.  You needn’t be a UK resident nor have a UK charge card in order to support this. Seeking a total of £9000, they’ve already got £2188 with 18 days to go.  Join the 46 funders so far, or find out more, here.

The other downside of export subsidies

Boeing and Airbus products photo by contri via flickr (cc)

Boeing and Airbus products photo by contri via flickr (cc)

Entrenched U S carrier Delta Airlines complains that their foreign competitors can buy Boeing jets cheaper than Delta can. Why? Because the federal Export-Import Bank offers loan guarantees, intended to make Boeing’s products more cost-competitive in the international marketplace, particularly against Airbus.

Of course this is a case where we might be better off allowing the “free market,” whatever that is, to set the cost of financing.  Abolish the ex-im bank, let manufacturers offer subsidized financing from their own resources if they wish, and don’t worry about the “balance” of trade.  But Boeing has sufficient political power that is unlikely.  Perhaps some favors will be offered to Delta, who doubtless also has political friends, in order to get them to drop the suit or minimize its practical impact.

As some indicator of the likely outcome, Influence Explorer says that Delta spent $4,154,382 on lobbying during the most recent reporting period, whereas Boeing spent $24,120,000.

 

“We need an anti-Rentier Campaign” says Michael Lind

image credit: Erick_ckB via flickr (cc)

image credit: Erick_ckB via flickr (cc)

A nice series of three short articles (h/t Gloria Picchetti) in Salon by Michael Lind, explaining the difference between an entrepreneur — who may become wealthy by providing goods and services people want — and a rentier — who seeks to become rich by exacting a toll or tax on productive work.

Lind mentions, in a positive way, the land value tax, and also notes that this isn’t a left/right issue, as labor unions and professional associations can be just as monopolistic as bankers.  The negative effects of “intellectual” “property” are noted, altho Lind seems to think that those who profit from patents are “inventors.” Of course there’s no mention of Henry George, but maybe changing our name to “Institute for the Study and Extirpation of the Useless Rich” would be a helpful step.

Salon describes Michael Lind as author of Land of Promise, for which Amazon carries 15 reader reviews. Not all the reviews are positive, but the criticisms seem to focus on his style and attitude, nobody complaining that his analysis is flawed. Lind is also a “co-founder of the New America Foundation,” whose sources of funding are unclear to me but seem to include rentier George Soros.

The remedies Lind suggests are quite centralized, such as changing federal tax laws, and maintaining financial repression with the object of moving people from private savings to social programs.  Not what I would propose, but what does a geoist in flyover country have to contribute to this discussion?

 

Are subsidies driving Chicago land prices back up?

Image linked from the Crain’s article

Of course they are, but it’s convenient to see it illustrated as Crains Chicago Real Estate Daily explains.

The proposal seems to be for Pam Gleichman and Karl Norberg to sell their 4.9 acre parcel (the Tribune story says 3.67 acres) near McCormick Place, in pieces, for a total of $195 million, which works out to something over $900/square foot, a level which I don’t recall seeing so distant from the loop.  We also learn from Crains that $90 million in TIF (real estate tax) money will be sought to help pay for these developments.  And of course the entire McCormick Place complex benefits from the 1% tax which all restaurant patrons in the central portion of Chicago (as far north as Diversey and as far west as Ashland) pay, not to mention the basic urban services, such as fire protection, transit, and streets, which are funded from other taxes.  We’re all paying so Gleichman and Norberg can get their $195 million. It’s only slightly comforting to realize that their venture is in bankruptcy, and the only reason we get to see these details is because they’re part of a court filing.  But it seems that, if everything works out as they claim, they’ll get to keep a large portion of this money.

Just for fun, we can consider what would have happened under a land value tax.  If the land was taxed at something approaching its full economic rent, it would likely already be developed pretty fully because nobody could profit by holding it underused.  There would likely be no bankruptcy because nobody would have loaned money on land with a modest selling price.

Why isn’t this the geoists’ slogan?

source: Chicago Pedestrian Safety Campaign

It’s all about the rent.  Once you understand what it is and how it works, you’ll look for it and see it everywhere.  You’ll know the fundamental cause of unemployment, low wages, economic stagnation, and poverty.  The cause that makes possible most of the other corruption and theft that plague our nation.

The slogan came from a local campaign to reduce pedestrian deaths, certainly a worthy cause and one that got some funding and creative minds.  But we should have thought of it first.

The difference between money and wealth/services

 

image credit: taken in 1990 by John Foss via Wikimedia (cc)

This article from the Guardian illustrates nicely the difference between what we want– goods (“wealth” in terms of political economy) and services– vs. money.  Money is a medium of exchange, which we can use to obtain wealth and services, but in itself it really isn’t capable of satisfying our desires. The particular example here is from the town of Volos, whose railway station is pictured.

I could imagine Greece not formally dropping the Euro, but just kind of abandoning it, using local currencies, perhaps eventually united into a new Drachma. It’s not clear from the article whether their government is attempting to tax the alternative-currency transactions.  The wiser course would be to tax economic rents instead of transactions, and that could be done in whichever currency is most practical.